This morning, hawkish comments by a Fed Governor have once again taken center stage. This time, it was comments by Governor Bowman, who indicated yesterday that interest rates should stay restrictive. Hawkish comments generally indicate that higher interest rates are required to combat inflation. This persistent beating of the ‘higher for longer’ drums by Fed officials appears to be finally taking its toll, impacting overall market sentiment and putting equity markets in the red. This, in turn, has put markets into a risk-off posture, helping the US Dollar gain broadly over the month of June.
Despite this latest wave of broad US dollar strength, the Canadian dollar was able to make some gains yesterday against the US Dollar after Canada released stronger-than-expected inflation data early yesterday morning, which was seen as significantly reducing the chances of a rate cut in July by the BoC. This alignment with the Fed’s stance reduced the likelihood of investors dumping Canadian dollar investments in favor of higher returns in the US. However, the Canadian dollar quickly gave back most of those gains this morning in the face of a broadly strong US dollar.
The Canadian dollar has now slipped back into the 1.36 to 1.38 range, which it has been trading in for the last few months. It will most likely remain in this range until either the Fed or the BoC sends definitive signals of their next move.
