- Reports of progress in Russia – Ukraine favors risk-on market mood, weighing on the USD, thus slightly boosting the CAD.
- An uptick in oil prices underpinned the loonie bulls.
- Market expect aggressive rate hike in 2022 from Fed and BoC.
USD/CAD is trading downside amid reports of progress in peace talks between Russia and Ukraine and renewed upside in oil prices.
In Tuesday’s face-to-face talks in Istanbul, Russia pledged to scale down military operations around the Ukrainian capital of Kyiv, while Ukraine proposed adopting a neutral status. However, the U.S. warned that the threat to Kyiv remains, pouring cold water on the optimism for an end to the war that began with the Russian invasion on Feb. 24. The risk on mood weighed on the greenback.
WTI prices rebounded after tumbling on Tuesday. Firmer oil prices extends support to the Canadian dollar. Additionally, The Bank of Japan (BOJ) unlimited bond-buying program-led slump in USD/JPY also added to the weight on the greenback.
Elsewhere, Philadelphia Fed President Patrick Harker crossed the wires. Harker noted that inflation in the US would be around 4% in 2022 and also added that the US central bank “misjudged” the effect of fiscal expenditure on inflation. He added to the list of policymakers those do not rule out a 50-bps increase to the Federal Funds Rate. Harker commented that the QT could add the equivalent of two quarter-point rate increases to Fed tightening.
Market are pricing at more rate hikes by the Federal Reserve in 2022. In fact, some market players expect two 50 bps increases in the May and June meetings.
Meanwhile, according to reuters, regarding Bank of Canada, “Market are pricing in between 200 and 225 basis points in the six remaining interest rate announcements in 2022, up from about 140 basis points before a blockbuster employment report this month.”
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