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USD/CAD pared today’s decline to 38 pips and 1.3688 after falling as low as 1.3631.
The 50 pip bounce comes as sentiment deteriorates and oil prices fall again. At the start of the session, we warned that the space to watch was the American regional banks and the ETF KRE which represents them. It went down about two hours ago and it slowly sucked risk trades with it.
It remains at a session low, down 2%, with an eye on beleaguered bank First Republic, which is down 6%.
The question here is whether banks need more help to consolidate deposits and/or deposit flight. The actions of the Fed and the ECB over the past week have indicated some bravado regarding the flight of banks and yesterday Yellen indicated that the Treasury would take no action to stop the flight of deposits. The issue was more technical than the title implied – the Treasury alone does not have the power to take this unilateral action without Congress – but perception is reality in a bank run.
Gross warned that a recession is coming.
Tech continues to outperform, but part of that is long-running and AI, so I wouldn’t see that as a big positive signal for the broader economy.
As for USD/CAD, I think some of the risks around Canadian housing are receding for now as yields fall, but the risks around global growth are increasing. Canadian oil will be an interesting place for the next decade, but with spot prices at $70, investment activity will slow and Canada’s trade balance will deteriorate.
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