USD/CAD Dropping to Key Support

USD/CAD, EUR/GBP Analysis and Talking Points

Cyclical currencies (AUD, CAD, NZD) holding onto recent gains as commodities remain underpinned. Despite the initial sell-off in oil prices following the positive development in Russian-Ukraine talks, oil prices has once again regained composure to maintain its rather wide $110-120 range. However, oil prices will continue to maintain highly sensitive to Russia-Ukraine headlines.

With upside momentum slowing in the US Dollar this has taken USD/CAD back below 1.2500, which now eyes key support at 1.2450 (YTD lows). Below which raises the likelihood of a 1.2300 test. While the Fed have near enough pre-committed to a 50bps rate rise at their upcoming. This has also increased the probability of a 50bps hike from the BoC, particularly after BoC Deputy Governor Kozicki, who stated that the BoC are weighing not only the pace, but also the magnitude of hikes. As it stands, 40bps of tightening has been priced in for the BoC’s next meeting, and thus there is still room for further repricing in favour of the Canadian Dollar. Bias for USD/CAD is to fade any bounces into 1.2590-1.2600.

USD/CAD Chart: Daily Time Frame

Source: Refinitiv, DailyFX

Tide is Turning for EUR/GBP

EUR/GBP has risen to a 3-month high, having clear several highs littered around 0.8450-70. This was in response to the aforementioned progress made in Russia-Ukraine negotiations, which in turn has prompted UK/GE rate differentials to bottom out. While it is clear that the BoE are much further in the hiking cycle than the ECB, the divergence appears to be converging, judging by the recent move in spreads. On one hand we have the ECB who are opening up to the idea of tighter policy. Meanwhile, on the other hand, the BoE appear to be reluctant hikers, given their recent forward guidance change on interest rates as they begin to highlight concerns over the cost of living squeeze and subsequent impact on growth.

EUR/GBP vs GE/UK 10yr Spreads