Daily Currency Update

USD - US Dollar

Yesterday we considered how the rally in the dollar in the first part of the week appeared unlikely to be sustainable. The recent dovish repricing in Fed rate expectations eventually caught up with the dollar, which sold off across the board yesterday despite global equities remaining under pressure on lingering concerns over regional banks in the US and weak earnings in Europe. Today, data-wise, we’ll see the release of first-quarter growth figures in the US. Most expect a below-consensus 1.5% quarter-on-quarter annualized print. Consumer spending should be strong in line with robust retail sales in January which were boosted by unseasonably warm weather. However, weaker net trade and inventory performance should offset that story. Like any Thursday, some focus will also be on initial jobless claims, which we expect to come in at 250k, in line with consensus.

CAD - Canadian Dollar

The CAD has traded in a very narrow range against the USD in today's low-volume market. Despite marginal gains against the USD, the CAD is struggling to move out of its shadow amid the decline in crude oil prices and other commodities. According to the minutes from the BoC's April policy meeting, policymakers discussed a potential rate hike due to strong growth and persistent inflation. However, Governor Macklem has indicated that interest rates may increase further to combat inflation, and the minutes did not provide any new insights into the rate outlook. The BoC decided to keep interest rates unchanged and will wait for additional economic data before making a decision in June. The current expectation in the market is that the BoC will maintain this holding pattern through the middle of the year, although there is now a risk of a rate cut later in the year, which the Bank will want to minimize. Observe the USD/CAD trends.

EUR - Euro

The big rally in EUR/USD yesterday was a testament to how markets seem to favor the euro among other currencies in instances when the dollar falls on the back of Fed dovish repricing and US banking concerns. Market perception is that investors favour currencies that can offer both an ongoing domestic tightening cycle and still some room for a hawkish surprise at the coming meetings. In that sense, the euro is one of the very few currencies that can offer this combination compared to peers. Today, a stabilization around 1.1050/1.1100 seems likely, although a break above 1.1100 could trigger another substantial rally in the pair. On the data side, the eurozone’s calendar only includes the economic confidence data for April, which is not very market-moving.