The Canadian dollar plunged after U.S. President Biden re-nominated Jerome Powell as Chair of the Federal Reserve. Analysts were split as to whether Powell or Fed Governor Lael Brainard would get the nod. Analysts suggested both candidates had similar monetary policy outlooks, but traders clearly disagreed, and they voted with their wallets.
The U.S. dollar soared, Wall Street gave up earlier gains and closed flat to lower, gold prices went into freefall and Treasury yields rocketed higher.
However, the moves should be taken with a grain of salt. Powell has repeatedly said that the Fed would remain patient until the economy achieved full-employment while reiterating that inflation increases were due to supply chain disruptions. Those are not the views of a man ready to boost interest rates. Many of his colleagues echo that sentiment.
Brainard is nominated for Vice Chair, and she will provide support for Powell’s dovish bias.
The Canadian dollar selloff intensified as West Texas Intermediate (WTI) oil prices fell to $75.33/b from $77.10/b yesterday, on the back of widespread U.S. dollar strength. Oil traders are worried that China, Japan, and the U.S. will coordinate the release of oil from their Strategic Petroleum Reserves even as global crude demand is expected to slow because of renewed COVID-19 outbreaks in Europe and other regions.
Asia equity indexes closed on a mixed note. Hong Kong’s Hang Seng index fell 1.20%. Australia’s ASX 200 rose 0.45% after M&A activity underpinned prices. European bourses opened in negative territory and have stayed that way except for the UK FTSE 100, which is unchanged. Wall Street futures suggest the major indexes will open flat. Gold lost 0.60% since Monday’s close, and US Treasury yields are 1.66%.
EUR/USD traded sideways in Asia and rallied in Europe, rising from $1.1227 to $1.1274 after German, and Eurozone Manufacturing Purchasing Managers Index reports were better than expected. The rally didn’t last, and prices dropped to 1.1245 in New York following dovish comments from European Central Bank officials.
GBP/USD peaked at $1.3408 after U.K. Manufacturing and Services PMI data was released, then dropped to 1.3356 in New York. Prices are on the defensive due to slightly diminished prospects for a December rate hike and broad U.S. dollar strength.
USD/JPY is choppy around 115.00, with prices boosted by the rise in 10-year Treasury yields. FX trading was subdued as Japan was closed for a holiday.
AUD/USD outperformed NZD/USD after New Zealand Q3 retail sales fell 8.1% q/q. The result was largely expected due to New Zealand coronavirus restrictions that were in effect.
The U.S. and Canadian economic calendars do not have any top-tier data, leaving Biden’s speech as the highlight.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
