The Morning Update

The USD holds steady, oil prices rise, equity markets are mixed, and US yields slip as markets are cautious ahead of Wednesday's US inflation report. Currency markets are trading within tight ranges, and US yields slipped after the 10-year note tested its highest level in November, slightly below 4.5%. Equity markets were mixed, with Asian markets higher, while the European markets slipped in early trading. In a Bloomberg survey, economists forecast Wednesday's CPI will show signs of easing inflation pressures. The annual core gauge, which excludes food & energy costs, is anticipated to ease slightly to 3.7%, down from 3.8% in February. Ex-Fed official Bullard says three rate cuts in 2024 remain the base case for the Fed as inflation moves towards the target rate and the economy remains resilient. Elsewhere, Oil prices near 5-month highs, Gold holds record highs, Copper tested near 15-month highs, Bitcoin steadies near 3-week highs, and Iron Ore is set for its biggest two-day jump since 2021. We expect markets to remain sidelined with a light economic calendar today. Wednesday sees NZ and CAD interest rate decisions, the US Inflation report, and the FOMC Minutes.

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In other news. Hamas says the Israeli proposal failed to meet Palestinian demands, yet it is under review. Taiwanese groups consider overseas headquarters to hedge against a Chinese attack. Spain will scrap "Golden Visas" for foreign property investors. US, UK & Australia say Japan could join part of AUKUS pact. Ireland's new PM pledges to fix the housing crisis as elections loom. March marks yet another record in global heat. The US says it destroyed a Houthi air defense drone system in the Red Sea.

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In currency markets. JPY steadies just shy of 152 as the finance minister warns against excessive volatility. CNY eases ahead of a deluge of domestic data. The USD index holds above 104 heading into Wednesday's critical US inflation report.

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In commodity markets. Oil prices are up by 0.55%, Natural Gas prices strengthened by 0.9%, Gold & Silver prices rallied by 1.25%, Copper prices firmed by 0.35%, Wheat prices weakened by 0.9%, and Soybean prices slipped by 0.15%.

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CAD edges off April lows vs. the USD despite investor caution heading into Wednesday's BoC Interest rate decision and the US inflation report. Given the lack of fresh economic data to give direction to currency markets today, we anticipate the rallying commodity prices will provide underlying support for the loonie today. The Bank of Canada is expected to keep interest rates on hold tomorrow, but money markets estimate a 78% chance of an interest rate cut in June. Pedro Antunes, Chief Economist at the Conference Board of Canada, said, "The economy is quite frail. "Bankruptcy rates for businesses are sky-rocketing, profits are down, inventories are high. The only thing holding up consumer spending is the increase in population."

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EURCAD is flat, holding monthly highs as investor expectations of a BoC June interest rate cut increase to nearly 80%.

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EUR holds near 5-day highs in quiet markets ahead of Wednesday's US inflation report. The USD slips amid a pullback in US Treasury yields and increased caution from investors, leaving the currency pair sidelined heading into Wednesday's US CPI report. Markets have reduced their expectations to 50% for the Fed's 25 BP point cut in June. We expect markets to remain within the current trading range as markets remain focused on Wednesday's economic calendar.

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GBPEUR edges off April lows as markets consolidate ahead of the EUR monetary policy statement on Thursday and Friday's flurry of UK data releases.

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GBP benefits from a weakening USD, allowing the pound to retest fresh April highs. The pound suffered a volatile April, trading from a low of 1.2540 to retesting at 1.2680 today. The lack of fresh domestic economic data until Friday has left the pound vulnerable to the USD volatility. Intraday, we anticipate the pound will be capped at 1.2700 as investors step to the sidelines ahead of Wednesday's US CPI report.