- Treasury yields rise sharply.
- RBA leaves rates unchanged as expected.
- USD opens with strong gains since Friday.
USDCAD: open: 1.3654-48, range since Friday: 1.3571-1.3670, close 1.3594, WTI $85.47, Gold $1930.78
The Canadian dollar dropped sharply since the New York open on Friday after weaker-than-expected domestic and mixed economic reports.
The Canadian economy shrank 0.2% year-on-year in Q2. The Bank of Canada has forecasted a gain of 1.5% for Q2. GDP fell 0.2% month-on-month, while the advance estimate for growth in July is flat. The news wasn't totally unexpected, as wildfires and public sector strikes had a negative impact.
The results ensure that the Bank of Canada will leave interest rates unchanged at Wednesday's meeting. There was more bad news. A CIBC study claims that Statistics Canada underreported the number of non-permanent residents by just about 1 million. That's a big miss and suggests that the housing market affordability crisis is worse than expected.
US nonfarm payrolls rose by 187,000 in August, above the forecast for a 170,000 increase. However, the June and July results were revised lower, while the unemployment rate climbed to 3.8% from 3.5%. The ISM manufacturing PMI rose but remained in contraction territory.
However, the key driver of US dollar demand overnight was the steep rise in the US 10-year Treasury yield, which soared to 4.22% from a low of 4.04% on Friday.
Global risk sentiment took a turn for the worse overnight after the Caixin China Services PMI data dropped to 51.8 in August, from 54.1 in June. Further evidence that the Chinese economic rebound has faltered helped fuel US dollar demand.
EURUSD traded sideways in Asia, then dropped from 1.0799 to 1.0739 in the wake of rising US Treasury yields. Industrial Producer prices fell 0.5% in July, a tad better than the 0.4% drop in June. The resilience of the US economy compared to the Eurozone is another factor weighing on the single currency.
GBPUSD traded negatively in a 1.2529-1.2632 range due to broad US dollar strength and the risk that UK rates have peaked for the time being. Slightly better than expected Services PMI (actual 49.5 vs. forecast 48.7) was not a factor for traders.
USDJPY surged from 146.40 to 147.29 in tandem with rising US Treasury yields. Services PMI was 54.3 in August, as expected.
AUDUSD is at the bottom of its 0.6364-0.6465 range due to broad US dollar strength and an uneventful RBA monetary policy meeting. The RBA left rates unchanged as expected. The statement maintained a hawkish bias.
US factory orders data are ahead.
