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USD / CAD - Canadian dollar consolidating

- WTI oil prices surge to %95.03 /b overnight.

- Treasury yields continue to climb.

- CAD dollar best performing currency overnight.

USDCAD: open: 1.3485-89, overnight range: 1.3482-1.3514, close 1.3498, WTI $93.47, Gold, $1875.99.

The Canadian dollar found solid support yesterday and then rode a wave of US dollar selling overnight. The Canadian dollar’s gains were more a factor of profit-taking after the US dollar’s gains this week; negative risk sentiment permeates global markets.

US Treasury yields rose steeply in recent days. The 10-year Treasury yield surged from 4.425% on Monday to 4.653% today due to a combination of events fueling a stampede into safe-haven assets. Last week’s hawkish FOMC meeting stoked fears that interest rates would remain at lofty levels for all of 2024.

Those fears intensified this week due to rising risk that the US government is forced to shut down on October 1. Moody’s rating agency was not happy and warned that a government shutdown could lead to the US losing its AAA debt rating.

Neel Kashkari, Minneapolis Fed President, stoked the risk aversion fears when he opined that there was a 40% chance that the Fed would need to raise interest rates in a meaningful way to drive inflation to its target.

A surge in oil prices is a double-edged sword for the Canadian dollar. On one hand, higher crude prices tend to give the currency a lift due to its status as a commodity currency. However, higher oil prices will exacerbate the risk of higher Canadian inflation.

West Texas Intermediate (WTI) has surged nearly 20% since the end of August as Saudi Arabian and Russian production cuts start to bite. In addition, US crude inventories continue to fall and are at levels last seen in October 2022. WTI traded in a $93.06-$95.03/barrel range overnight.

EURUSD traded softly due to a strong US dollar, falling to 1.0491 before recovering to 1.0542 during early trading in New York. This decline coincided with the Eurozone Sentiment indicator (ESI) dropping from 93.6 in August to 93.3.

GBPUSD traded higher in a 1.2120 to 1.2220 range, peaking in New York. The gains were fueled by profit-taking and in tandem with the EURUSD rally.

USDJPY traded cautiously within a range of 149.21 to 149.64. The looming threat of Bank of Japan (BoJ) intervention kept upward movements in check, while rising US Treasury yields provided a base.

AUDUSD traded in a 0.6344 and 0.639 range. Australia's retail sales dipped by 0.2% m/m in August, falling short of the anticipated 0.3% gain.

Today, the FX markets will be driven by a combination of US economic data releases, speeches from Federal Reserve officials, and news regarding the potential government shutdown