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ECB Governing Council member Nagel: The ECB will take necessary measures to control rising energy prices.ECB Governing Council member Nagel: The ECB remains highly vigilant against the threat of inflation.Sources say the meeting between U.S. Vice President Vance and the Qatari Prime Minister will cover U.S.-Qatar relations and the situation in Iran, with a focus on the liquefied natural gas market and regional stability.The Canadian government announced it will undertake major reforms to its regulatory system.On May 8th, JPMorgan analysts stated that U.S. gasoline prices "could very well" rise to $5 per gallon as refineries prioritize jet fuel production over other petroleum products. In a report released Friday, the analyst team noted that in Asia, currently the region hardest hit by the energy crisis, the price shock triggered by the Iran war is spreading significantly faster in the refined product markets, such as jet fuel and diesel, than in the crude oil market. If refinery operations continue to be constrained by limited crude oil supply, fuel prices could become "the primary channel for demand destruction." "In this scenario, even with a significant widening of refined product crack spreads, crude oil prices could still stabilize around $100 per barrel. At that point, the next phase of the shock will no longer resemble a traditional crude oil price surge, but rather a refining and end-fuel supply crisis." Currently, jet fuel is the most significantly affected product, prompting refineries to maximize jet fuel production, which typically means reduced diesel production. The ripple effect is also spreading to gasoline production. Analysts say, "This may explain why U.S. gasoline prices have risen to $4.55 per gallon, and why the risk of gasoline prices rising to $5 can no longer be ignored."

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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