The Morning Update

The US$ weakens, oil prices edges higher, equity markets are mixed, while US yields rise amid tepid risk sentiment. Global markets remain volatile in the 2nd half of the week, with currency markets fluctuating with in their weekly ranges. The big question facing markets now is whether the Federal Reserve decides to raise rates at Wednesday's rate meeting or hold after 10 straight increases. Investors have boosted expectations that the Fed will hike after both the Australian & Canadian central banks surprised markets by unexpectedly raising rates to bring inflation under control. US yields have advanced, rate sensitive tech stocks are under pressure, the US$ index bounced off intraday lows, while oil prices strengthens heading into the North American open. Today focus shifts to US Jobs data & BoC Beaudry speech to help provide intraday direction.

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In other news. The Eurozone economy slips in to recession in Q1/23 after German revision. US east coast blanketed in veil of smoke from Canadian fires. US to link up with Taiwan & Japan drone fleets to share real-time data. The UK to host the first global AI regulation summit in autumn. Thousands race to flee Ukraine towns as flooding spreads. Taiwan activates air defense systems Thursday after reporting 37 Chinese military aircraft flying into the Island's air defense zone. Canadian Finance Minister tries to calm 'anxious' Canadians after BoC rate hike on Wednesday.

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In currency markets. The US$ bounces off intraday lows, holding near 3-month highs as Fed rate hike expectations grow. CNY holds near 6-month lows on US rate outlook and China's weakening recovery. C$ extends gains to 4-week highs after BoC rate hike. CNY & Asian currencies are flat on average vs US$. Trading currencies are in positive territory with SEK flat, CHF & MXN edge higher 0.1%, JPY is up 0.25%, while NOK, AUD & NZD gain 0.5% and ZAR rally 0.75% vs US$.

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Oil prices edges higher as markets balance ongoing demand concerns vs the prospect of upcoming Saudi output cuts. C$ advances towards key 75 cents after the BoC surprised markets by hiking interest rates to 4.75%, the highest levels since 2001 on increasing concerns that inflation could stuck significantly above its 2% target amid continuing strong economic growth. BoC Governor commented, "we will be evaluating whether the evolution of excess demand, inflation expectations, wage growth and corporate pricing behavior and consistent with achieving the inflation target'. Intraday US jobs will be key as markets shift their focus to the Fed rate decision next week.

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EURCAD remains steady near 4-month lows after the loonie advances supported by the surprise BoC rate hike on Wednesday.

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EUR holds above 1.2700 despite the Eurozone slipping into a recession. Markets remain focused on the ECB rate decision and appear to be ignoring the Eurozone GDP data that showed the EU slipped into a technical recession in Q1/23 after German GDP were revised downwards. The Euro is expected to hold within its current trading range as as investors focus on the ECB interest rate decision next week with the central bank expected to hike by 25bps. Intraday focus will be on US jobs data, any positive surprises could put pressure on the Fed to maintain its hiking policy at next weeks monetary policy meeting.

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GBPEUR remains steady, holding near 2023 as the European growth slips into recession and expectations that the BoE will also hike at its June meeting, maintaining its wider interest rate differential.

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GBP the pound advances on US$ weakness, despite cautious market mood and higher US treasury yields. Wednesday saw UK gilt yields rise which is helping support the underlying strength for the pound. Interest rate sensitive two year gilt yield rose more than 2% to 4.6% to its highest level since September. The unexpected rate hikes by Australia and Canada provides additional support for investors that the BoE will maintain its interest hiking policy into the June meeting. Today the jobs data will be in focus and if expectations increase that the Fed will hike next week, could cap the pound strength below 1.2500.

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