- Global recession risks fuel US dollar demand
- GBPUSD hitting 37-year lows
- US dollar extends gains, JPY and CHF outperform
USDCAD snapshot: 1.3524-28 overnight range 1.3470-1.3549, close 1.3488, WTI $81.74, Gold $1656.69
The Canadian dollar continued to slide overnight. The Loonie is under pressure due to broad-based US dollar demand from a mix of global recession fears, elevated geopolitical tensions, and the outlook for sharply higher US interest rates.
This week’s decision by the Federal Reserve to raise US interest rates 75 basis points to 3.25% and the Summary of Economic Projections suggesting rates will rise to 4.5% by year-end sparked a stampede of US dollar buying. Traders view the strength of the US economy (low unemployment rate, robust economic data) as evidence the Americans will weather a global recession far better than the rest of the world.
Last week, the World Bank issued a press release warning of a risk of a global recession in 2023 because of simultaneous interest rate hikes in developed markets. The World Bank believes that rate increases will continue until supply disruptions and labour market pressures subside enough to lower inflation.
China is often described as “the world’s factory,” is already experiencing a weaker economy. Rate cuts and stimulus packages have not interrupted the slowdown.
Geopolitical tensions are escalating as Russia begins its referendum in occupied Ukraine territories.
Moscow says that a successful referendum cedes the territory to Russia, which means they can defend the acquisitions using all the weapons at their disposal, including nukes. The West and Ukraine claim the referendum is illegal.
Goldman Sachs economists exacerbated equity market weakness when they revised their 2022 target for the S&P 500 index from 4,300 to 3,600 due to expectations for sharply higher US interest rates.
Asia equity indexes closed with losses, and European bourses are sharply lower. DJIA and S&P futures are down substantially, suggesting a negative open on Wall Street.
EURUSD traded in a 0.9738-0.9852 range. The single currency is being sold to the Russia/Ukraine tensions, broad US dollar demand, and by weaker than expected Eurozone PMI data. September PMI fell for the third consecutive month, indicating a recession has already started.
GBPUSD dropped to 1.1022 from 1.1272 due to negative sentiment following the UK government’s “mini-budget.” Investors are concerned about how the government plans to fund the latest tax cuts and energy support program.
USDJPY churned in a 141.77-143.26 range with prices supported by the jump in the US 10-year Treasury yield to 3.716% while intervention fears capped gains.
AUDUSD and NZDUSD fell due to broad US dollar weakness.
Fed Chair Jerome Powell speaks today, but it is expected to be a repeat of his FOMC press conference.
