The Morning Update

The USD holds on to gains, oil prices ease, equity markets are down, and US yields rise as risk sentiment fades. Currency markets remain under pressure, and global equity markets weaken amid geopolitical concerns, Chinese economic concerns, and the prospect of higher interest rates for longer. The USD continues to gain strength on the combination of safe-haven buying due to the Israel/Iran concerns and the prospect of higher-for-longer rates as domestic interest rates remain elevated. In China, while GDP beat expectations, retail sales and industrial output fell short of expectations, leaving markets concerned as Beijing's stimulus efforts failed to boost the domestic economy. Markets remain on edge after top Israeli military officials reasserted that their country has no choice but to respond to Iran's weekend drone & missile attack. Elsewhere, aluminum prices remain at record highs, oil prices are steady at the $90 level, and Citibank calls for gold prices to be at $3,000 over the next 6-18 months. In focus today is the CAD CPI, CAD Annual Budget announcement, US Building Permits, Housing Starts, and Industrial Production. Speeches from Fed Chair Powell, Fed's Williams & Jefferson, BoC Governor Macklem, BoE's Governor Baily, ECB Villeroy & German Buba President Nagel will help provide intraday direction to currency markets.

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In other news. Israeli war cabinet meets for a third day on Iranian attack. Ukraine's eastern cities brace as Russian troops advance. China's economic growth hits 5.3%, but March data shows demand remains weak. The US Speaker says the House will vote on Ukraine and Israel's aid this week. UK wage growth beats expectations as unemployment picks up. Tesla's global job-cutting includes leading markets in the US & China. Chinese Premier Xi tells German Chancellor Scholz cooperation not a 'risk' amid EU trade tension. Lockheed wins a US missile defense contract worth $17 billion. Denmark's historic stock exchange in flames. In Canada, Alberta's population growth is breaking records, but signs of strain are showing.

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In currency markets, Asian emerging market currencies come under pressure from a strong USD, which saw KRW hit two-year lows, JPY holds at near 35-year lows, and CNY holds at 5-month lows. Elsewhere, AUD, NZD, GBP, CAD, and Euro all sit near 5-month lows against the USD. CNY is flat, while Asian currencies weakened by 0.15% on average compared to USD. Trading currencies remain under pressure, with MXN & SEK tumbling by 0.6%, AUD, NOK, ZAR & NZD weakening by 0.35%, and JPY & CHF down 0.2% vs. USD.

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In commodity markets. Oil prices eased by 0.4%, Natural Gas prices are up 0.1%, Gold prices firmed by 0.3%, Silver prices weakened by 0.8%, Copper prices tumbled by 1.5%, Wheat prices slipped by 0.7%, and Soybean prices fell 0.25%.

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CAD tests a fresh 5-month low of 1.3814 on a combination of safe-haven USD buying and continued strength in the US economy, which is increasingly expected to keep US rates higher for longer with US inflation levels remaining elevated. Domestically, the focus will be on the BoC Governor's comments following today's inflation report after he said a rate cut in June was possible. In the current geopolitical and economic conditions, we continue to feel the loonie has room to continue to ease towards 1.4000. Intraday, the BOC CPI & the Canadian Budget announcement will help drive the loonie.

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EURCAD edges off intraday lows as weakening commodity prices are putting pressure on the loonie in early trading.

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EUR steadies near 5-month lows as focus shifts to Chairman Powell's speech. The Euro continues under pressure as risk sentiment fades due to increasing geopolitical tensions that support the safe-haven USD. Domestically, Italian inflation y/y slips to 1.2%, beating expectations, while German ZEW Economic sentiment came in much stronger than expected at 42.9 vs. the previous 31.7. The positive German ZEW provided some underlying support for the Euro as markets await Fed Chair Powell's policy outlook later. Yesterday, Fed's Mary Daly cautioned against acting urgently, saying that the Fed needs to be confident that inflation is coming to the 2% target before a policy action.

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GBPEUR holds steady as markets await Fed's Powell, BoE Governor Bailey, and ECB Villeroy comments to help provide market policy direction.

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GBP stalls below 1.2450 amid UK employment data and ahead of BoE & Fed comments. The pound holds near 5-month lows heading into BoE Governor Bailey and Fed Chair Powell's policy comments today. Domestically, the UK unemployment rate rose to 4.2% in February from 4%, while the average earnings held steady at 5.6%. The pound is expected to remain under pressure with the ongoing Middle East tensions supporting the safe-haven USD. Alongside BoE Governor Bailey's comments, Fed Chairman Powell will speak on the economic outlook and the monetary policy following last week's spike in the US inflation levels. Our bias remains for a weaker pounds towards 1.2250 on clean break of 1.2400.