The chase for higher-yielding currencies benefited the Australian and Canadian dollars as both respective central banks sounded hawkish tones and laying the groundwork for quantitative tightening in the months ahead. The Loonie outpaced the greenback, edging past the parity-mark on a combination of the Bank of Canada's hawkish policy statement and a rebound in crude oil prices. Meanwhile, US equity indexes edged up slightly with the Dow Jones higher by 0.2% and both the Nasdaq and S&P 500 trading up by nearly 0.7%.
The Bank of Canada announced the results of its policy deliberations earlier in the session, leaving interest rates unchanged at 0.25% -- as widely expected. However, the BoC signaled that policy tightening would be imminent, citing a stronger than anticipated economic recovery with upwardly revised growth rates to 3.7% in 2010 and expectations for the economy to return to full capacity in Q2 2011. The Bank stated that it is appropriate to begin to lessen the degree of monetary stimulus and removed its conditional commitment to hold current policy rate until the end of the second quarter of 2010. The Canadian dollar climbed higher immediately following the statement release as traders priced-in heightened prospects for the BoC to raise interest rates by 25-basis points at its next policy setting meeting on June 1st.
The RBA also signaled further policy tightening would be on the horizon in the minutes of its policy meeting released overnight. The Bank stated since lending rates were still a little below average, members expected that they would probably need to rise further in the period ahead. The RBA last tightened rates by 25-basis points to 4.25% and is likely to raise rates by another 25-basis points when it meets in May.
The greenback was mixed in the Tuesday session, trading higher versus the euro but sliding against the Canadian and Australian dollars. The economic calendar will remain subdued until Thursday in which traders will look ahead to the release of weekly jobless claims, CPI, PPI, March existing home sales and the February home price index.