- Traders reassess dovish Fed outlook
- Reserve Bank of Australia raises interest rates by 25 bps
- Canadian dollar is the worst performing G-10 currency since yesterday
USDCAD snapshot open 1.3627-31, overnight range 1.3573-1.3630, close 1.3588, WTI $76.25, Gold $1774.74
The Canadian dollar is the worst performing G-10 currency since Monday’s NY open. USDCAD soared from 1.3387 yesterday to 1.3630 in early NY trading today due to the double whammy of negative risk sentiment and plunging crude prices.
Yesterday, positive risk sentiment soured when US ISM Services PMI and Factory orders were released. Both reports were far stronger than expected. The ISM services details were good with employment rising and supply chain problems easing.
The data helped to validate Monday’s Wall Street Journal article that suggested the Fed would continue raising interest rates to levels higher than markets expect.
Suddenly, no one wanted stocks, and everyone wanted US dollars. The greenback rallied across the board, The S&P closed down1.79% and the US 10-year Treasury yield jumped to 3.579% from 3.505%.
The Canadian dollar slide was acerbated by plunging crude prices. West Texas Intermediate fell 7.5% from yesterday’s peak to the low in NY today as traders feared that the strong US data elevated the risk of a US recession. They quickly forgot about earlier positive sentiment from reports China was moving to speed the pace of covid restrictions easing.
EURUSD traded in a 1.0477-1.0522 range with German factory orders data not having much of an impact.
GBPUSD dropped from 1.2340 yesterday to 1.2160 overnight before rebounding to 1.2234 in NY trading. The currency pair is tracking broad US dollar moves ahead of next week’s FOMC meeting.
USDJPY is at the bottom of its 135.98-137.42 range with prices tracking the slide in the US 10-year Treasury yield to 3.55% from 3.603% overnight.
AUDUSD is at the top of its overnight 0.6699-0.6742 range. The RBA hiked the OCR rate by 25 bps to 3.10 which was expected. The hike was in response to inflation which at 6.9% y/y in October was said to be “too high and the statement warned of further interest rate hikes “over the months ahead.” The statement noted that the labour market “remains tight” and that the unemployment rate of 3.4% was the lowest level since 1974. The RBA also said that “monetary policy operates with a lag and that the full effect of the increase in interest rates is yet to be felt.”
It won’t be much of a stretch to suggest that tomorrow’s Bank of Canada monetary policy statement will make similar comments.
US and Canadian trade data is on tap.
