Canadian Dollar Update, March 27, 2023 – Canadian dollar bounces back.

USD/CAD Open: 1.3729-33, Overnight Range: 1.3704-43, Previous Close: 1.3744

While US dollar retreats modestly, except against antipodean currencies and JPY.

The Canadian dollar strengthened against its U.S. counterpart on Monday, notching up its biggest advance in two weeks, as signs of easing stress in the banking sector contributed to a surge in oil prices.

Traders felt empowered following news that US-based First Citizens Bank and Trust company would acquire the loans and deposits of Silicon Valley Bank. In addition, not only is the market pricing a Fed pause in rate hikes at the May FOMC meeting, but they also expect the first rate cut to be as early as June.

That view contrasts sharply with the FOMC outlook. The Summary of Economic Projections (SEP) release last week shows FOMC members expect rates to remain around 5.0% for the rest of 2023. Fed Chair Jerome Powell took it a step further saying further rate hikes are likely and a rate cut is not their base case.

The Canadian dollar continues to rise and fall with ever-shifting risk sentiment and that will not change this week. On Friday, Canada Retail Sales rose a very robust 1.4% m/m compared to expectations for a 0.7% gains. The results reinforced the Bank of Canadas decision to announce it would pause raising interest rates. In addition, the strength of the data led some analysts to increase their GDP forecast for January to 0.5% from 0.4%.

The Canadian dollar is also getting a bit of a lift from West Texas Intermediate (WTI) oil prices which have surged 10% since last Monday. The oil price rally is due to the improved risk tone and renewed hopes for increased demand. A decisive move above $70.40/b suggests further gains to $75.00/b.

EURUSD is trading in a 1.0746-1.0781 range and getting some support from better than expected German Ifo data.

GBPUSD is at the top of its overnight 1.2220 to 1.2272 range, with prices supported by the change in risk tone and higher equity markets.

USDJPY rallied from 130.46 to 131.56 in early NY. Prices are getting a lift from the increase in the US 10-year yield to 3.466% from 3.378% at Fridays close.

AUDUSD consolidated Fridays losses in a 0.6637-0.6665 range overnight due to softer commodity prices, particularly iron ore. The US data calendar is empty.

Investors had worried that stress in the banking sector could lead to a credit crunch, worsening the economic growth and slowing demand for oil, one of Canada's major exports.