The USDCAD pair retested the strong resistance at 1.2620 today, before erasing those gains and trading flat during the late US session. Earlier in the day, Canadian labor market data for March were released. The net change in employment declined sharply to 72,500, down from 336,000 in February. On the other hand, the unemployment rate improved more than expected and ticked lower to 5.3%. Average hourly wages rose to 3.7% yearly from 3.3% previously. The market currently prices in a 50 bps rate hike at the Bank of Canada monetary policy meeting next week. However, the OIS-based rate expectations suggest that the market more or less completely prices in a large rate step already. Therefore, the market could focus more on the daily chart, which seems a bit bearish for the Canadian dollar. Meanwhile, the WTI oil has dropped significantly and dived below the psychological level of 100 USD and also below the 50-day moving average. Nevertheless, the medium-term outlook for the commodity is still looking bullish. Technically speaking, It looks like the USDCAD pair has posted a double bottom near 1.2450, a bullish reversal formation. After today's data, we can see further upside, likely targeting the 200-day average at 1.2620 (the green line). If the USD/CAD pair jumps above that level, the short-term trend could change to bullish, with a possible rally to 1.28.

Summary United States: Minutes Put All Eyes on the Fed, but Economic Activity Remains Strong In an otherwise calm week of data, Wednesday's release of the FOMC minutes stirred things up as they showed committee members agreeing that elevated inflation and the tight labor market warrant balance sheet reduction to start soon. The minutes also stressed that current economic indicators point to strong activity, which was affirmed by the robust domestic demand that drove the ISM services index higher in March and kept the February trade balance at a record deficit. Next week: CPI (Tuesday), Retail Sales (Thursday), Industrial Production (Friday) International: Commodity Price Spike Keeps Latam Inflation Elevated In our view, one of the regions that is most at risk to elevated commodity prices is Latin America. This week, we received evidence that inflation is indeed moving higher as a result of the push higher in commodity prices. Furthermore, the Canadian economy continues to demonstrate a robust recovery from the COVID pandemic. Next week: India CPI (Tuesday), Bank of Canada (Wednesday), European Central Bank (Thursday) Interest Rate Watch: Balance Sheet Runoff Takes Shape The minutes of the March FOMC meeting released this week signaled the committee is likely to begin balance sheet reduction in May. Monthly caps for Treasury and MBS runoff are likely to reach $60B and $35B, respectively, and be phased in over just three months. The expedited timeline helped the yield curve steepen. Credit Market Insights: Consumer Credit Expands in February The Federal Reserve Board reported that consumer credit increased at an annualized rate of 11.3% in February, with revolving credit leading the way, increasing 20.7%. Topic of the Week: Last Week's Positive Russia and Ukraine Headlines Appear to Be a False Start Toward the end of last week, headlines suggested the Russia-Ukraine conflict may have reached a turning point. While reports suggest the Russian military is indeed withdrawing from Kyiv, Russian troops seem to be reinforcing their positions in other areas of Ukraine in an effort to establish stronger control. Download the full report

The Reserve Bank of New Zealand to raise OCR by 25bps  to 1.25% in April. Increased odds that the RBNZ could deliver a 50-bps hike to tackle inflation. The kiwi’s turnaround hinges on the central bank’s tightening outlook. NZD/USD is keenly awaiting the Reserve Bank of New Zealand (RBNZ) policy meeting next Wednesday to find some comfort after being smashed to two-week lows below 0.6900 on the aggressive Fed’s tightening outlook. The RBNZ is set to announce its interest rate decision on Wednesday, April 13, at 0200 GMT. RBNZ to surprise with a double shot hike? The RBNZ is widely expected to increase the Official Cash Rate (OCR) by another 25bps from 1% to 1.25% on Wednesday. If the expectation is met, the central bank will hike rates for the fourth straight meeting. This meeting will not be followed by Governor Adrian Orr’s press conference. A majority of the economists polled by Reuters predicted a 25bps lift-off this month, although a quarter of them kept doors open for a 50-bps increase. The overnight index swaps (OIS) roughly price in seven rate hikes from the central bank, expecting the OCR to reach 2.50% or higher by the end of this year. It’s a tough call for the RBNZ as it is for the other major central banks globally, as it looks to tame the runaway inflation while keeping the economy afloat. The offshore risks have increased amid surging commodity prices, especially in light of Russia’s invasion of Ukraine. Previously, the coronavirus pandemic-led supply chain disruptions and a tight labor market have already driven inflation to a 30-year high of 5.9% in the fourth quarter of 2021, far exceeding the central bank’s 1-3% target range. With New Zealand’s Q4 GDP having rebounded 3.0% over the quarter to be up 5.6% year-on-year and the Unemployment Rate at 3.2%, the central bank is in a position to deliver a 50-bps rate hike this month. Although the Reserve Bank will be watchful of its action stifling economic growth and may avoid a hard-landing at this point. Sooner than later, the RBNZ will step up its hawkish rhetoric in cohesion with the Fed and the Reserve Bank of Australia (RBA). The RBA left its key rates unchanged on April 5 but dropped the ‘patient’ pledge on inflation developments, hinting at a potential rate hike in upcoming meetings. The Fed March meeting minutes suggested that the board remains poised to trim the balance sheet and go in for a 50-bps hike at its May meeting. Trading NZD/USD with RBNZ decision Wednesday’s RBNZ announcement will be critical for kiwi’s fate, as it hangs around fortnightly lows amid risk-off markets, in the face of the additional Western sanctions against Russia’s atrocities and the hawkish Fed’s outlook. A double shot rate hike is needed to provide the much-needed reprieve to kiwi bulls, which could send NZD/USD back towards the monthly highs of 0.7035. The currency pair could witness a ‘sell the fact’ trading if the RBNZ delivers the expected 25 bps hike while sounding cautious on future rate hikes. Risk sentiment at the time of the policy announcement, however, could influence the pair’s reaction amid the protracted Russia-Ukraine conflict. 

Key highlights Eurozone retail sales jumped slightly more than expected y-o-y in February with automotive fuel and non-food products driving the growth. The European Union's statistics office Eurostat said retail sales in the 19 countries sharing the euro rose 0.3% m-o-m in February for a 5.0% y-o-y increase. China has promised once again to step up monetary support, raising expectations that an interest rate cut or other easing measures could happen as early as next week. The proportion of Japanese households expecting prices to rise a year from now has hit a 14-year high, a central bank survey showed, as inflationary pressures from rising raw material costs grew. USD/INR movement The USDINR pair remained higher amid a strong dollar and outflows from domestic stocks. The dollar hovered near two-year highs against a basket of major currencies after meeting minutes showed the Federal Reserve preparing to move aggressively to fight inflation, while commodity currencies fell from recent peaks. Investors would closely monitor the RBI MPC statement which is due for tomorrow. Global currency updates The pound traded slightly higher against the US dollar after the US Treasury yields fell from their highs. The UK administration has imposed an outright ban on all new outward investment into the country, reported Reuters. However, due to the lack of major market-moving economic data due for release from the UK, the USD price dynamics will play a key role in guiding the GBPUSD pair. Euro traded slightly weak amid a strong dollar, pessimistic global market sentiments. Moreover, investors are worried that new sanctions on Russia for its war crime will hurt the economy and it will lead to a further rise in energy prices. Additionally, market participants will remain careful ahead of ECB minutes and the outcome of the upcoming French presidential election. Bond market U.S. Treasury bond yields slipped from multi-year highs, offering some respite to equities after Federal Reserve minutes released the previous day reinforced the rate-hike momentum already priced into markets. The gap between the two- and 10-year segments was at the widest in a week, reversing a recent inversion that is often seen as a recession signal. The Indian bond market traded sideways ahead of the RBI MPC meet which is due tomorrow. India 10 year benchmark closed the day flat at 6.916%. Overall movement registered in the yields of sovereign securities remained within 5 basis points. Equity market Indian equity benchmarks Sensex and Nifty 50 extended losses tracking weakness across global markets. Losses across financial, auto, IT and metal shares pulled the headline indices lower though gains in pharma stocks lent some support. Broader markets slipped into the red in the second half of the session, with the Nifty midcap 100 finishing the day 1% lower and the Nifty smallcap 100 declining 0.31%. Evening sunshine "Focus to be on the US Initial Jobless Claims data." European markets were choppy as volatility continued following details of the U.S. Federal Reserve’s monetary tightening plans and the ongoing war in Ukraine. U.S. stock index futures edged up as Treasury yields slipped from multi-year highs, offering some relief to growth and technology stocks battered this week by concerns around a more hawkish Federal Reserve. Investors worldwide are also keeping an eye on the fallout from China’s tight Covid-19 controls as it battles another surge in cases, potentially further disrupting global supply chains.

It’s going to be a major week for central banks ahead of the long Easter weekend, with three meetings on the way and rate hikes looking almost certain to be the outcome of at least two of them. So the spotlight will fall on the Bank of Canada, Reserve Bank of New Zealand and European Central Bank for much of the week. Although economic data will also be ample – inflation numbers will be watched in China, the United States and United Kingdom, while French elections might rattle European markets.

1)    UK wages/unemployment (Feb) – 12/04 – the cost-of-living squeeze is no better illustrated than in the gap between wage growth which saw an increase of 4.8%, in January, including bonuses and 3.8% excluding them. On the plus side, this trend of higher wages is set to rise in the coming months, however it won’t even come close to matching the impact of rising prices in the shops, even when the various pay increases announced by various retailers recently. The change in NI insurance thresholds from July will help in the longer term, but as far as the here and now, upward pressure on wages is likely to increase in the coming months, helped by rising vacancies which rose to a new record high of 1.3m for the three months to January. Unemployment also fell back to 3.9% in January and is expected to fall back to its pre-pandemic lows of 3.8%, when this week’s February numbers are released.          2)    UK CPI (Mar) – 13/04 – the picture for UK CPI looks set to get even worse for March, even as February CPI rose to a new 30 year high of 6.2%, up from 5.5% in January, while core prices rose by 5.2%. The picture on the retail prices index is even darker, rising to 8.2%, from 7.8%, while the latest set of input prices rose to 14.7%, thus increasing the odds of a double figure print for headline CPI as we head into Q2. In further signs that inflation is becoming more embedded we’re also seeing significant increases in prices away from food and energy. Clothing and footwear prices are up 8.8% year on year, furniture and household goods are up 9.2%, and that’s before we get the various tax rises that are due in the April numbers. These problems aren’t unique to the UK either with March inflation in the EU jumping to 7.5% from 5.9%. This is a huge jump in the space of a single month, and if replicated here could see UK inflation rise by a similar amount, although some of the rise could be mitigated by the better energy mix the UK economy has. Nonetheless, expectations for this week’s CPI are expected to see a rise to 6.7% and potentially closer to 7%, with the very real possibility we could see a test of the 1991 peaks of 8.3% by the middle of the summer. The RPI inflation measure could even retest the 1990 peaks of 10.4% in the next two to three months.     3)    US CPI (Mar) – 12/04 – having seen the Federal Reserve pull the trigger on its first interest rate rise since 2018, much has been made of the timeline of how big the next few rate increases are likely to be with the odds increasing of more than one 50bps rate rise occurring in the coming months. The US labour market has continued to go from strength to strength with an unemployment rate of 3.6% and wages growth at 5.6%. In February US CPI jumped to a new 40 year high of 7.9%, while core prices rose by 6.4%. Any prospect that these price pressures might be slowing were hit by the recent sharp rise in prices paid numbers from the ISM manufacturing survey which saw a big jump in March and is expected to translate into a move to 8.4% for March CPI. With US PPI prices still showing little signs of slowing this week’s CPI numbers look set to seal the deal on a 50bps rate move at the Federal Reserve’s May meeting, a move that bond markets already appear to be discounting. The more important indicator is likely to be the direction of travel for PPI which is already at 10% and is expected to go higher to 10.6%, although the gains being seen here have been more incremental in recent months compared to the big jumps we saw at the end of last year, which are now feeding into the recent CPI numbers.       4)    Bank of Canada rate decision – 13/04 – it was a little surprising that the Bank of Canada saw fit to defer a rate rise at its March meeting give that in January the central bank warned that inflation was likely to be higher than forecast, through most of this year, and for a good part of next. The fact they didn’t says more about their timidity than anything else especially with CPI at 30-year highs, and the labour market holding up well. With the Fed having raised rates themselves the BoC now has more cover to do the same thing, however they may well come to rue their timidity, and while we can expect to see a...