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The Federal Reserve accepted a total of $15.782 billion from 12 counterparties in its fixed-rate reverse repurchase operations.On April 1st, Federal Reserve Chairman Schmid warned on Tuesday that rising energy prices should not be assumed to have only a short-term impact on inflation, as inflation was already close to 3% even before the Iran war caused oil prices to surge, and the Feds progress toward its 2% inflation target has stalled. "I dont think we can be complacent about the risks to inflation expectations," Schmid said. He also noted that while most measures of medium- to long-term inflation expectations have remained stable, this offers little comfort. "Our task now is to take appropriate policy action to confirm these expectations." Schmid did not specify what policy measures he was referring to, but he opposed the Feds decision to lower interest rates twice last year. Last week, financial markets reflected a growing belief that rising oil prices might force the Fed to raise interest rates later this year to prevent inflation. However, this week, market sentiment has shifted to the view that the Fed will keep interest rates unchanged.On April 1st, Iranian President Pezechzian spoke by phone with European Council President Costa on March 31st to exchange views on the regional situation and the impact of the war on Iran. Pezechzian stated that the EUs silence on the crimes of the US and Israel was regrettable and contrary to its own human rights principles. He pointed out that Iran had no intention of attacking regional countries, but the US maintains military bases in some countries, and attacks against Iran are launched from these bases. Pezechzian emphasized that the current tensions in the Gulf and the Strait of Hormuz are caused by hostile actions, and the only way to restore normal order is to stop aggressive attacks. He also stated that the Strait of Hormuz is closed to ships of the aggressor and its allies, and any external intervention in this war under any pretext will have serious consequences.Federal Reserves Schmidt: He expects persistently high oil prices to have a "mild drag" on economic growth.Federal Reserves Schmid: We must continue to focus on the inflation target.

USD/CAD declines to 1.3500 on firmer Oil prices, BoC concerns over US inflation, and Fed Minutes

Daniel Rogers

Apr 10, 2023 14:35

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The USD/CAD maintains losses close to 1.3500, shattering a four-day winning trend, as traders brace for key Easter Monday data/events on major bourses. However, the recent decline in the Loonie-U.S. dollar exchange rate may be due to the increase in the price of WTI petroleum oil, Canada's primary export. In contrast to the recent increase in ardent Fed forecasts, the Bank of Canada's (BoC) dovish bias poses a challenge to pair sellers.

 

After increasing for three consecutive weeks, WTI crude oil prices gain 0.61 percent intraday near $80.00. Recent increases in the price of black gold may be due to geopolitical concerns surrounding China and Taiwan. In addition to the supply cut by OPEC+ and the faltering US dollar, the energy benchmark is sustained by the supply cut by OPEC+ and the weakening US dollar.

 

However, the US Dollar Index (DXY) has fallen for three consecutive weeks and is under pressure near 102,000.

 

Fears of higher Fed rates versus inaction from the Bank of Canada (BoC) grew after the upbeat US Jobs report versus the lack of significant positives in the March Canadian jobs report.

 

As a result, the CME's FedWatch Tool indicates a 69% chance of a 0.25 basis point rate hike in May, up from 55% prior to the US employment report.

 

Canada's headline Net Change in Employment increased to 34.7K in March from 21.8K in February, compared to the market consensus of 12K, while the Unemployment Rate came in at 5% versus the analysts' estimate of 5.0%. During the specified month, the Participation Rate decreased to 65.6% from the expected and previous rate of 65.7%. In addition, the average hourly wage fell 5.2% year-over-year in March, down from 5.5% in February.

 

In contrast, the US Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls (NFP) increased by 236K in March, the lowest increase since January 2021 (considering revisions), compared to the expected 240K and the previous 330,000. Additionally, the unemployment rate fell from 3.6% to 3.5%, while the labor force participation rate rose from 62.6% to 62.6%. The annual wage inflation rate decreased from 4.6% to 4.2%, below market expectations of 4.3%.

 

Futures on US equities ended higher, but yields remain under pressure ahead of the crucial BoC monetary policy meeting, US inflation, and Fed Minutes. Given the dovish concerns from the Bank of Canada (BoC) and the likely hawkish comments in the FOMC Minutes, the USD/CAD may see additional gains, barring any unexpected developments.


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