USD/CAD rallies, benefits from risk aversion

The USD/CAD currency pair gained on Tuesday, moving up more than 0.7% from a day’s low of 1.3524 to a high of 1.3637. The risk sentiment in Europe has deteriorated due to resurfacing banking concerns, and this is sinking all ships, with high beta currencies like the Canadian Dollar bearing the brunt of it. The US Dollar is therefore strongly bid.

The US Dollar index, DXY, was most recently up 0.6% at 101.92, just shy of the highs of 101.949 that were triggered by unsettling earnings from First Republic Bank and UBS.

Dropping deposits at First Republic Bank have rekindled concerns about the state of the banking industry, and UBS’s announcement of a 52% decline in quarterly earnings as it prepares to acquire rival Credit Suisse has not helped.

Oil is one of Canada’s main commodities, and its price has fallen recently. WTI fell from a high of $79.02bbls to a low of $76.57bbls. Energy prices are under pressure today due to the strength of the US dollar and worries that a slowdown in the global economy will reduce energy consumption. The black gold is speeding towards the OPEC production reduction bullish gap’s origin near $75.65bbls, WTI.

Domestically, the Bank of Canada is due to release its monetary policy deliberations for the April 12 interest rate decision on Wednesday and these will be parsed for any indication of a lower bar to resume tightening after the more hawkish messaging over the last two weeks.

Tiff Macklem, the governor of the Bank of Canada, has already acknowledged debating rate increases in his media roundtable. He stated that if the minutes take on a more hawkish stance, markets may price a higher likelihood of future rate increases by the BoC.