The Canadian dollar was one of the best performing major currencies today after it gained on an upbeat Bank of Canada. The BOC held its benchmark interest rate at 0.5% as expected but its statement was more positive overall. It said that recent domestic economic data have been encouraging and inflation was broadly in line with expectations.
After trading mostly flat for most of the day, the USD / CAD tumbled on the BOC announcement, dropping below the key $1.3500 level to reach a one-month low of $1.3429.
The US dollar’s rebound against the yen on Tuesday held close to the key 112-yen level today, with prices consolidating in a narrow range as investors stayed on the sidelines ahead of the FOMC minutes due to be released later today. The minutes of the May 3 Fed policy meeting will be closely watched for any clues in to the future trajectory of rate hikes.
US economic data released today showed existing home sales dropped 2.3% month-on-month in April to an annual rate of 5.57 million homes, compared to March’s 4.2% increase. While the decline was expected in April, economists were expecting existing home sales to fall by 1.1%.
The greenback fell slightly after the disappointing data. But the main risk event for the dollar will be the FOMC minutes. Philadelphia Fed President Patrick Harker, speaking today on Fox News, said that the Fed could tighten in June.
The euro failed to build on Tuesday’s gains versus the dollar and traded just below the key $1.1200 level in a tight range. The single currency slid on comments from ECB President Mario Draghi who was speaking at a conference in Madrid about financial stability. Draghi said nothing new and gave no sign of deviating from current guidance. He reiterated that Eurozone growth was solid but underlying inflation pressures remain subdued. Meanwhile, ECB Vice President Vitor Constancio also spoke today and was on the dovish side and said that the central bank must be cautious about a premature withdrawal of stimulus. ECB chief economist Peter Praet commented on the need for a more sustained pick-up in inflation before amending monetary policy.
Sterling fell below Tuesday’s low against the dollar to touch $1.2930. The absence of UK data today meant that the focus will be on Thursday’s second reading on UK GDP for the first quarter.
In commodities, WTI oil traded in the $51 a barrel handle as investors adopted a wait-and-see approach ahead of the OPEC meeting tomorrow. Expectations are for the current output cut deal to be extended to March 2018. In the meantime, prices were supported today by a weekly US inventory report that showed crude stocks fell last week. The American Petroleum Institute (API) reported a drawdown of 1.5 million barrels compared to analyst expectations for a decline of 2.3 million barrels.
Gold prices were capped at $1254 an ounce as investors awaited the FOMC minutes. Gold is sensitive to US interest rates and could see some volatility after the release of the minutes, especially if they will show that the Fed is likely to move to increase interest rates at its June policy-setting meeting.