The Canadian dollar rallied in Asia in a move fueled by surging oil prices.
West Texas Intermediate (WTI), the North American benchmark, extended the rally which began September 21, rising from Monday’s New York close of $75.42/barrel to $76.64/b at the European open before sliding to $76.25/b in New York.
According to some analysts, the oil price rally is due to concerns that a colder than usual start to winter combined with falling U.S. inventories will drive prices to $85.00/b.
The gain in WTI is helping the Canadian dollar offset selling pressure from the steep rise in U.S. Treasury yields, which touched 1.55% overnight. A slew of Fed policymakers has stoked rate hike fears following the hawkish Federal Open Market Committee meeting last week.
Yesterday, New York Fed President John Williams and Fed Governor Lael Brainard repeated that it would soon be time to begin paring asset purchases, which was suggested in the FOMC statement.
Fed Chair Jerome Powell and Treasury Secretary Janet Yellen testify before the Senate Committee on Banking, Housing, and Urban Affairs. Powell’s remarks have been released. He essentially repeated his opening remarks from the FOMC press conference.
The World Bank upgraded its Gross Domestic Product growth forecast for China to 8.5% from 8.1% previously. The Peoples Bank of China said it would safeguard the rights of housing consumers, which alleviated negative sentiment from the Evergrande crisis.
The surge in Treasury yields knocked the major European equity indexes lower, but they are off their worst levels in early NY trading. S&P 500 futures point to a negative open on Wall Street. The US dollar strength is weighing on gold prices which are down nearly 1.0%.
EUR/USD is suffering from a mix of dovish comments from ECB officials, surging US Treasury yields, and bearish EUR/USD technicals. The single currency traded in a $1.1673-$1.1702 range with a decisive break below $1.1760 setting the stage for a test of $1.1600.
GBP/USD has fallen hard for the same reasons as EUR/USD, but a U.K. gas shortage has exacerbated the drop. GBP/USD fell to $1.3587 from $1.3716.
USD/JPY surged alongside the rise in 10-year U.S. Treasury yields, climbing from 110.94 to 111.46. Higher oil prices supported the rally as Japan’s economy is fully reliant on oil imports
Today’s U.S. data is second-tier leaving Wall Street to drive FX direction.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
