- Israel retaliates for Iran attack-market reaction fades quickly.
- Fed interest rate outlook driving FX
- USD has a wild overnight session but opens tamely.
USDCAD: open 1.3759, overnight range 1.3746-1.3805, close 1.3767, WTI $82.67, Gold, $2381.22
The Canadian dollar was whipped about overnight, but when order was restored, USDCAD opened exactly where it opened on Thursday.
Israel retaliated to Iran’s missile barrage last weekend.
The news broke in early Asian trading, and the reaction was fast and furious. The US dollar soared, as did the safe-haven currencies, Japanese yen and Swiss franc, while US Treasury yields plunged. The 10-year yield dropped to 4.49% from 4.63%, and WTI oil jumped to 86.26/barrel.
The moves were reversed almost as quickly as they occurred, and traders' focus shifted back to the outlook for US interest rates. Fed Chair Jerome Powell raised concerns earlier this week when he pointed out that inflation was far from being tamed. His remarks were followed by comments from New York Fed President John Williams. He said, “We’ve got interest rates in a place that is moving us gradually to our goals, so I definitely don’t feel urgency to cut interest rates.” Then he warned, “if the data are telling us that we would need higher interest rates to achieve our goals, then we would obviously want to do that.”
Those words boosted Treasury yields and the greenback. They will continue to guide trading today as there are no actionable US economic reports on tap.
EURUSD is relatively stable in a 1.0610-1.0663 band and has fully recouped its overnight losses. ECB official Martins Kazaks said that policymakers need to remain cautious due to sticky inflation. German PPI rose 0.2% m/m in March, but the news was ignored.
GBPUSD is choppy in a 1.2389-1.2456 range. Selling pressures from the Israel attack on Iran have been replaced by higher US treasury yields. UK Retail Sales data didn’t help as March results were below the forecast (actual 0% m/m vs. forecast 0.3%).
USDJPY rallied from the Israel/Iran news low of 153.59 to 154.68, supported by the bounce in the 10-year Treasury yield to 4.60%.
AUDUSD bounced in a 0.6362-0.6425 band, with the upside limited due to caution ahead of the weekend in case geopolitical tensions flare up again.
