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CAD Inching Higher as BoC Seen Launching Tightening Cycle

FOREX
  • CAD is outperforming in early Wednesday trade, higher against all others in G10 ahead of the Bank of Canada rate decision at 1500GMT/1000ET. The BoC are expected to begin a protracted tightening cycle with a 25bps hike to 0.50%, running slightly against the recent trade in market pricing.
  • Elsewhere, the Ukraine tail risk continues to exert influence on global currencies, with regional currencies again underperforming. SEK and NOK are the weakest in G10, with the single currency also trading softer. EUR/USD printed 1.1059 in early Wednesday weakness, putting the rate again at the lowest level since mid-2020.
  • Latest reports from the region suggest Russian military units are switching to ranged, artillery based attacks, which may suggest a slowdown in their approach to central Kyiv. Talks between Russian and Ukrainian representatives remain a hope for markets, however both sides talked down the likelihood of an imminent return to negotiations absent a solid agenda.
  • The schedule for the Wednesday session is busy: Fed's Powell testifies in front of the House Panel, with markets watching to see the extent to which the recent Ukraine crisis has impacted Fed policy-setting. Markets unwound bets for Fed tightening throughout the Tuesday session. Fed's Evans, Bullard and Logan also speak ahead of the release of the Fed's Beige Book. ECB's Lane and BoE's Cunliffe make up the rest of the docket.
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