Wednesday was a day of two events: FOMC president Janet Yellen presented her semi-annual testimony to the US Congress and the Bank of Canada decided on interest rates. As one could expect it had a major impact on USDCAD.
A testimony from Janet Yellen was highly anticipated as investors hoped to find clues regarding future monetary policy in the US. However they were right to do so only to some extend. Yellen provided a detailed analysis on the US economy but she was reluctant to elaborate on future policy moves, especially in terms of interest rates. While she was positive on the economy and presented a fairly detailed plan for changes to the balance sheet, a vagueness regarding future interest rates left US dollar exposed against the most of other currencies.
The Bank of Canada turned out to be a real market mover. The Bank was expected to increase interest rates but many traders saw a “dovish hike” a move to higher rates with a very cautious statement. Meanwhile the Bank not only increased rates but also delivered hawkish statement, highlighting economic progress and ignoring lower inflation. As a result USDCAD plunged to 1.27.
The British pound fared better than other European currencies as jobless rate declined to the lowest level since 1975 and wage dynamics was a notch above the market consensus. Nevertheless the data mix from the UK has been mixed at best recently.
On the oil market investor had to confront higher output from OPEC with huge inventory draws in the US. Oil price saw massive volatility after the DOE report but was able to recover and is about to close the day with 1%+ gains.
Looking ahead we have data on consumer confidence in New Zealand and inflation expectations in Australia overnight. In the morning a report on inflation could be a mover on SEK whereas PPI release will be in the spotlight in the US ahead of crucial CPI release on Friday.