By FXTM Analysts
Asian stocks crawled higher on Wednesday, following the positive cues from Wall Street overnight after the S&P 500 closed at its highest level in 2023.
However, markets remain cautious despite hopes for stimulus in China with risk sentiment shaky after the World Bank’s warning on the global economic outlook. European futures are pointing to a cautiously positive open despite the industrial production figures for Germany rising less than expected in April.
In the currency markets, the dollar seems to be on standby amid the absence of a fresh fundamental spark. Oil prices fell in the previous session, despite initially rallying on news of Saudi Arabia’s supply cut while gold was little changed.
In other news, Australia’s economy slowed more than expected in the first quarter of 2023 as aggressive policy tightening took hold. GDP expanded 0.2% from the prior quarter which was the weakest expansion witnessed since the third quarter of 2021.
Year on year, the economy grew 2.3% cooling from a downwardly revised 2.6%. This disappointing report comes just one day after the Reserve Bank of Australia surprised markets with a 25-basis point rate hike.
Aussie bulls seemed unfazed by the data, with the currency edging slightly higher across the board. Taking a quick look at the technicals, AUDUSD is bullish on the daily charts with prices approaching the 200-day SMA around 0.6690. A solid breakout above this point may encourage a move toward 0.6740.
Bank of Canada rate decision in focus
After the surprise 25 basis point hike by the RBA on Tuesday, all eyes will be on the Bank of Canada rate decision on Wednesday. While the central bank is not expected to hike rates, money markets are still pricing in a 46% probability of a rate rise becoming a reality this afternoon.
It’s worth keeping in mind that the stronger-than-expected GDP and CPI data have supported expectations around the BoC keeping rates higher for longer. If the central bank surprises markets with a hike in June, the Canadian dollar could rally.
Talking technicals, the CAD has been one of the best-performing G10 currencies month-to-date, gaining over 1% against the dollar. USDCAD has found itself trapped within a wide range on the monthly, weekly, and daily charts with a potential breakout on the horizon.
With the current path of least resistance pointing south, it may be wise to keep an eye on how prices behave around the 1.3300 support.
