Daily Updates

The Canadian dollar continued to edge higher overnight and into today, hitting a two-week high against the US dollar. The Canadian dollar gained momentum after stronger-than-expected employment data and stabilizing oil prices, which had fallen by more than 15% over the last three weeks.

On Wednesday, the Federal Reserve Bank raised US interest rates to a target range of between 5 – 5.25%. This was the 10th consecutive meeting in which the Fed announced an increase in interest rates, and all indications are that it will be the last one. While the Fed chairman confirmed that there is no clear level at which interest rates are restrictive enough, by removing wording suggesting that more interest rate hikes are necessary from their accompanying statement, the Fed is signaling that it is done increasing rates.

This week, there has been no shortage of negative economic news and renewed worries about the stability of the US regional banking sector, primarily due to the First Republic Bank, which looks like it will be taken over by regulators. In the good old days of a predictable FX market, this would have led to a safe-haven rally for the US dollar, causing the Canadian dollar to drop in value.

The Canadian dollar to US dollar exchange rate remained relatively stable overnight and into this morning. The USD/CAD pair has been hovering at one-month lows (CAD highs) and moving sideways throughout much of this week, with no sustained breaks above 1.3645. Generally, FX markets have been somewhat directionless due to mixed economic news.

Yesterday was fairly quiet, with range-bound trading for both equities and FX markets, including the Canadian dollar, remaining relatively flat. However, today, stocks have turned lower after several smaller regional US banks, most notably First Republic, reported larger than expected deposit outflows (meaning more money is flowing out of the bank than into the bank), suggesting that stability risks have not entirely gone away. Additionally, market expectations for Google to report another drop in ad revenue and for Microsoft to indicate that their earnings growth likely slowed down last quarter are adding to the pessimistic outlook. Adding to the negative sentiment, US consumer confidence has hit a nine-month low.

The Canadian dollar was moderately lower again on Friday against the US dollar. The Canadian dollar is currently trading at 1.3548, its lowest level since April 10th. The Canadian dollar has lost about 1.2 percent versus the US dollar this week (at the time of writing).

A string of disappointing news has turned market sentiment negative this morning. Overnight, UK headline inflation data showed that inflation rose at an annual pace of 10.1% over the past month, suggesting that the Bank of England has some work to do in raising interest rates. Then, the Bank of Atlanta Regional Fed President commented that he would like to see rates above 5%. This morning, in what is scheduled to be another busy day for earnings, Morgan Stanley’s stock fell after it posted a decline in net revenue and income. Bank earnings will be reviewed closely for any signs of further turmoil after last month’s collapse of a few US regional banks and the sale of Credit Suisse to UBS.

Perhaps it’s the change in seasons, but there has been a growing sense of cautious optimism in the global equity markets over the past few weeks. Inflation appears to be easing, the US regional banking system has stabilized, and the extensive interest rate hikes by the Federal Reserve in the US and the Bank of Canada are approaching their terminal points or are currently on an extended pause.

On Thursday, the US dollar continued its recent decline against most major currencies, hitting a two-month low against the Canadian dollar. This followed a day of significant economic news on both sides of the border on Wednesday.