USD / CAD – Canadian Dollar rally hits a wall

– Treasury yield spike sinks Loonie.

– Canadian and US economic calendars are very light.

– US dollar consolidating Tuesday’s gains.

USDCAD: open 1.3661, overnight range 1.3641-1.3678, close 1.3645, WTI $80.59, Gold, $2345.26

The Canadian dollar rally hit a brick wall, and the currency tumbled, negating a minor uptrend. The Loonie appeared to be on the verge of testing a long-term resistance area in the early NY trading session. USDCAD was probing the 1.3610-15 level with the intent of testing the major 1.3550-1.3580 support zone until Minneapolis Fed President Neel Kashkari started talking.

Mr. Kashkari told an audience in London, England, “I don’t think anybody has totally taken rate increases off the table. I think the odds of us raising rates are quite low, but I don’t want to take anything off the table.” He justified his view by saying, “Wage growth is still quite robust relative to ultimately what we think would be consistent with the 2% inflation target.”

Those words resounded like a firecracker in an empty room. It was clearly evident in the US 10-year Treasury yield, which spiked from 4.455% at yesterday’s open and closed at 4.566%. Those rates ticked higher overnight and are sitting at 4.576% in NY. Mr. Kashkari’s comments were also behind a relatively weak US 2- and 5-year Treasury auction.

The Canadian dollar was collateral damage and could face a similar fate today. There is a lack of actionable US or Canadian economic reports, and New York Fed President John Williams and Atlanta Fed President Raphael Bostic are speaking.

EU/USD traded in a 1.0829-1.0861 overnight range with prices undermined by slightly softer German state inflation reports. However, the negative sentiment was offset by GfK Consumer sentiment data, which improved to -20.9 from -24.2.

GBPUSD is stuck in a 1.2736-1.2778 band but deriving some support from EUR/GBP selling. The ECB is expected to cut rates sooner and deeper than the Bank of England, which is weighing on prices.

USDJPY traded with a slight bid in a 156.94-157.41 range due to the surge in US Treasury yields. Japanese May Consumer Sentiment (actual 36.2 vs. April 38.3) was largely ignored.

AUDUSD rallied to 0.6665 after higher-than-expected Australian inflation data but gave back all the gains and opened in NY at 0.6643. April CPI was 3.6% y/y (forecast 3.4%, March 3.5%). Prices were also pressured due to the jump in USD/CNY.

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