Forex News

Derek Halpenny at MUFG highlights that the Canadian Dollar (CAD) has held up well versus the US Dollar since the Middle East conflict began, with markets expecting the Bank of Canada (BoC) to keep rates unchanged but adopt a more hawkish tone. He sees higher, more persistent inflation risks and a short-term bias favouring the US Dollar (USD), though CAD should outperform other energy-importing G10 currencies in a re-escalation scenario.

BoC steady but more inflation focused

"In addition to the FOMC, the Bank of Canada meets today and an unchanged monetary stance is widely expected. We also get the release of the Monetary Policy Report and we will likely see a downward revision to GDP growth for this year along with an upward revision to inflation."

"In a de-escalation scenario it seems reasonable to us to assume that a retracement in energy prices will be to levels that are still higher than pre-conflict levels if you assume some amount of additional geopolitical risk premium is likely to remain. That means a higher level of inflation than assumed prior to the conflict that may become difficult to look through."

"However, at today’s meeting the backdrop will be no end in sight to the closure of the Strait of Hormuz while risk assets have remained resilient. We expect the BoC to therefore be certainly more hawkish than in March with some signs of a shift in focus toward upside inflation risks."

"Our short-term bias favours the US dollar based on the increasing prospect of re-escalation of the conflict and a further rise in crude oil prices. The latest IMM positioning data saw the largest week of CAD selling by Leveraged Funds since July 2024."

"While the Canadian dollar could underperform the US dollar in a re-escalation scenario, we would expect moves to be more modest and for CAD to outperform other energy import-dependent G10 currencies."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

TD Securities’ Global Strategy Team expects the Federal Reserve to keep the policy rate at 3.50–3.75% at the April FOMC meeting, describing the Committee as patient given balanced labor markets and oil-driven headline inflation. They see Chair Powell maintaining a neutral tone on future policy and note this is likely his final meeting as chair, with markets watching closely for any comments on succession.

Fed seen steady with neutral tone

"All eyes turn to the Fed meeting on Wednesday, where we expect the Fed to remain noncommittal and, in turn, rates to have a very modest reaction. In addition to the Fed, the Senate Banking Committee will be voting on Warsh's nomination at 10am EST. Rates are likely to continue to move around headlines coming from the Middle East, but they could be reactive if any information coming from Chair Powell's expected tenure comes out in the Q&A."

"The policy rate will remain at 3.50-3.75% at the April FOMC. The labor market remains in balance while headline inflation has picked up due to the oil shock. Given the still-heightened level of uncertainty, we expect the Committee will reiterate a message of patience."

"Chair Powell is likely to remain neutral regarding future policy while comments regarding his future plans post-succession will be of note. This is likely his last meeting as chair."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

• US Durable Goods Orders rose more than expected in March.
• The US Dollar Index clings to small daily gains above 98.50.

Durable Goods Orders in the US increased $2.6 billion, or 0.8%, on a monthly basis in March to $318.9 billion, the US Census Bureau reported on Wednesday. This print followed the 1.2% contraction recorded in February and surpassed the market expectation for an increase of 0.5%.

"Excluding transportation, new orders increased 0.9 percent. Excluding defense, new orders decreased 0.3 percent," the press release read. "Computers and electronic products, up eleven of the last twelve months, led the increase, $1.0 billion or 3.7 percent to $29.6 billion."

Market reaction

These data don't seem to have a noticeable impact on the US Dollar's (USD) performance. At the time of press, the USD Index was up 0.1% on the day at 98.70.

ING analysts highlight that Copper remains more sensitive to macro conditions than Nickel, with prices falling for a fourth day on geopolitical uncertainty and global growth concerns. They note some support from improving Chinese physical demand and tighter inventories, but stress that sustained Copper upside likely requires clearer easing of geopolitical risks and a more constructive industrial outlook.

Macro headwinds weigh on Copper

"Copper, meanwhile, remains more sensitive to the macro backdrop. Prices dropped for a fourth day, amid ongoing geopolitical uncertainty and concerns over global growth."

"Although improving physical demand signals in China — including tighter inventories after post‑holiday restocking — are offering some support, overall sentiment remains fragile."

"Sustained upside in copper is likely to depend on clearer signs of easing geopolitical risks and a more constructive outlook for industrial activity."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)