The main story of the day was BoC tapering and upgraded forecasts lifting the CAD. Elsewhere the USD erased gains seen in the European morning.
- Bank of Canada reduced weekly bond purchases to C$3bn from C$4bn.
- Canada Mar CPI 2.2% yr/yr vs 1.1% in Feb and 2.3% exp.
The USD extended gains through the European morning, mainly against the EUR and the JPY as equity markets made a modest recovery from Tuesday’s losses. EUR/USD fell back to 1.2000 after opening near 1.2030, while USD/JPY rose to 108.20 from 108.00. Other pairs were fairly steady near opening levels, though EUR/CHF edged a little lower before ending higher while EUR/SEK edged a little higher before ending lower.
UK inflation numbers saw CPI slightly below expectation at 0.7% y/y, but PPI input and output data both stronger than expected at 5.9% and 1.9% y/y respectively. Otherwise Japan Post Insurance, also known as Kampo, said it may reduce its investment in foreign bonds without currency hedge, as the company thinks the forex market remains volatile. The firm holds about 70.40 trillion yen ($650 billion) of assets, including 5.22 trillion yen in foreign currency assets, as of September.
Afternoon was dominated by the CAD. Initially, the CAD was softening on the back of a weaker oil price and a slightly lower than expected rise in Canadian CPI, which still rose to 2.2% in March from 1.1% in Feb, but was less than the 2.3% expected. But the BoC meeting saw the CAD reverse sharply higher, with USD/CAD falling more than a big figure to below 1.25 as the BoC tapered their weekly purchases by CAD1bn, as had been broadly expected, but also gave an optimistic and hawkish assessment of the economy and policy, suggesting potential tightening as early as H2 2022.
The USD was also generally weaker against the riskier currencies as equities firmed up at the US open, with EUR/USD finding support at 1.20 and AUD/USD bouncing from 0.77. EUR/USD and GBP/USD did little more than erase earlier declines though AUD/USD moved above .7750. A break below .97 in AUD/CAD was however sustained. USD/JPY was stable a little above 108. Movements in UST yields were modest with no clear direction. 20 year supply was well received.
Asia FX and News
- Australia Cancel China’s Belt and Road deal with Victoria State
- Japan to Decide Fri. on Virus Emergency in 4 Prefectures ~ Asahi
- USD modestly on the backfoot against the European currencies as US yields struggle continues. USTs extended its rally, led by the ultra-long end following Wednesday’s solid sale results. US 10yr fell below its 50dma. EUR/USD extended a shade above Wednesday’s peak, slightly short of 1.2050 ahead of ECB. USD/JPY holds near 108 despite softer US yields. Japanese equities bounced back on earnings optimism while regional equities were stable.
- NZD/USD was choppy, NZD broadly softer though without clear reasons. AUD/NZD corrected some of Wednesday’s losses. AUD/USD traded sideways narrowly just above 0.7750 despite China criticizing Australia after it cancels the Belt and Road deal with Victoria state. USD/CAD still steady around 1.25 after the steep drop Wednesday on the BoC’s tapering.
AU: NAB Business Confidence (Quarterly) (1Q) 17 Index (Prev: 15)
Still to be released
05:30 BST - NL: Consumer Spending (Feb) % (Prev: -13.5)
05:30 BST - NL: Unemployment (sa) (Mar) % (Prev: 3.6)
07:45 BST - FR: INSEE Manufacturing Confidence (Apr) Index (Mkt: 99 Prev: 98)
09:00 BST - IT: Industrial Sales (Feb) % m/m (Prev: 2.5)
09:00 BST - IT: Industrial Sales (Feb) % y/y (Prev: -1.6)
12:45 BST - EU: ECB Main Refinancing Rate (Apr 22nd) % (Mkt: 0 Prev: 0)
12:45 BST - EU: ECB Deposit Rate (Apr 22nd) % (Mkt: -0.5 Prev: -0.5)
13:30 BST - US: Initial Claims (Apr 17th) K (Mkt: 610 Prev: 576)
15:00 BST - US: Leading Indicator (Mar) % (Mkt: 1 Prev: 0.2)
15:00 BST - US: Existing Home Sales (Mar) 4cast: 6.45 Mn (Mkt: 6.14 Prev: 6.22)
13:30 BST – EU: ECB President Christine Lagarde Holds Press Conference