- Risk aversion rises with Treasury yields.
- More verbal intervention from Japanese officials.
- US dollar rises on safe-haven demand.
USDCAD: open: 1.3490-94, overnight range: 1.3449-1.3505, close 1.3454, WTI $88.86, Gold, $1912.88.
The Canadian dollar inched higher in an uneventful overnight session. There wasn’t much economic data available in Asia and Europe, leaving US Treasury yields in control of FX markets.
The 10-year Treasury yield rose to 4.56% in Asia, about 0.12 bps higher than yesterday’s low as traders bet that not only are US interest rates likely to rise further, but they will also remain at high levels for a lot longer than previously expected. JPMorgan Chase CEO Jamie Dimon may have exacerbated the situation yesterday when he said that interest rates may need to go higher to further fight inflation. He argued that an increase in interest rates to 7.0% from 5.0% , would be far more painful than the increase from 3.0% to 5.0%.
If Mr Dimon’s view is correct, the chances that thee US would avoid a recession would rise dramatically.
Minneapolis Fed President Neel Kashkari and FOMC voting member warned another rate hike is likely. On Monday he said, “If the economy is fundamentally much stronger than we realized, on the margin that would tell me rates probably have to go a little bit higher and then be held higher for longer to cool things off.”
His colleague Chicago Fed President Austan Goolsbee sort of agreed. He admitted “The risk of inflation staying higher than where we want it is the bigger risk. We have got to get inflation back down to target.
Wall Street didn’t appear to be overly concerned and the major indexes closed with gains. Asian equity traders were not impressed, and Japan’s Nikkei 225 index fell 1.11%, leading the other indexes down. European bourses are trading mixed. The UK FTSE 100 is in positive territory while the German Dax is down 0.60%. S&P 500 futures are up 0.40%, pointing to a positive open on wall Street.
EURUSD bounced in a 1.0560-1.0604 range with the low seen in Asia and is trading near the overnight high in NY trading. There were no European data releases today which left divergent US and Eurozone economic policy outlooks to drive trading.
GBPUSD traded in a 1.21677-1.2216 and is just above its session low in NY with bearish technicals weighing on prices.
USDJPY retreated from its Asia peak of 149.19 to 148.70 after Finance Minister Shunichi Suzuki said he is “closely watching FX moves with a great sense of urgency.”
AUDUSD traded choppily in a 0.6388-0.6431 band due to widespread risk aversion underpinning the US dollar.
Today’s US data includes Housing Price Index, Case-Shiller Home Price Index, and New Home Sales
