USD / CAD – Canadian Dollar looking ahead to CPI.

– Bank of Japan hikes rates for first time in 17 years.

– RBA gives policy statement a dovish tweak.

– US dollar rallies and opens with a bid.

USDCAD: open 1.3573-1.3577, overnight range 1.3520-1.3551, close 1.3534, WTI $82.01, Gold, $2153.53

The Canadian dollar is under pressure, but the looming domestic inflation report and firm oil prices are helping to limit losses.

The Canadian dollar dropped overnight due to widespread US dollar demand that lifted the US dollar index (DXY) from 103.22 to 103.71 due to rising US interest rates. The US 10-year Treasury yield has climbed from 4.08% on March 7 to 4.32% this morning after a series of stronger than expected economic reports and hawkish Fed comments suggested fewer Fed rate cuts than previously expected.

Canada’s February CPI is expected to rise 3.1% year-over-year, which is higher than the 2.9% seen in January. The Bank of Canada will be unhappy but not surprised. They have repeatedly warned that inflation would not fall in a straight line and that there would be “hiccups” along the way. Policymakers were not overly enthusiastic when the January number dropped inside its target range, and they won’t be overly disappointed with a higher result today. The next monetary policy meeting is not until April 10, so today’s CPI results will not change the messaging.

The Bank of Japan was in the spotlight overnight and on top of all the financial news feeds. The BoJ ended its 17-year stretch of negative interest rates when it raised the short-term rate to 0-0.01%. In movie terms, the news was not like the blockbuster Avengers: Endgame but more akin to “Black Adam.” Japan’s Nikkei Financial newspaper had leaked the details the day before.

EURUSD traded cautiously in a 1.0835-1.0877 band. The German and Eurozone ZEW surveys were mixed, and ECB governing council member Luis de Guindos suggested that policy easing discussions might start in June.

GBPUSD traded lower in a 1.2667-1.2747 band with traders cautious ahead of tomorrow’s UK inflation data and the FOMC meeting. USDJPY rallied from 149.01 to 150.70 in a profit-taking rally after analysts decided that the short-term impact of the BoJ rate hike was negligible. The BoJ raised its short-term rate to 0-0.01% from -0.01 to 0.0% and ended its yield curve control (YCC) policy.

AUDUSD dropped rapidly, falling from 0.6564 to 0.6503 due to the one-two punch of a dovish RBA and a rallying US dollar. The RBA left rates unchanged, and the statement switched to a neutral bias from a tightening bias previously. US Housing starts and Building permits data are ahead.

US Housing starts and Building permits data is ahead.

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