- FOMC minutes due today.
- Oil prices remain soft.
- US dollar consolidating yesterday’s gains. AUD underperforms.
USDCAD: open 1.3332-36, overnight range 1, 1.3318-1.33, close 1.3322, WTI $69.87, Gold, $2055.18
The Canadian dollar had a bad day yesterday, but it wasn't alone. US dollar bulls returned with a vengeance and lifted the US dollar index (DXY) from yesterday's low of 101.03 to 102.20 overnight.
The Canadian dollar also suffered from another drop in crude oil prices. West Texas Intermediate dropped to $69.28/b in Asia before climbing back to $70.87 in NY today. The oil market is torn between demand due to production cuts and escalating Middle East tensions, and a fear that supply will outstrip demand in the first quarter of 2024. OPEC is reportedly concerned about the low prices as well, and there are rumors of an OPEC meeting in early February.
Traders are hoping that today's FOMC minutes will provide additional clarity around the outlook for US rate cuts. The Summary of Economic Projections suggested rates could fall by 75 bps in 2024, while the market is pricing 150 bps of rate reductions. If traders decide that their view is too aggressive, the US dollar may extend gains, and equities could slide further.
Asian equity indexes closed with losses across the board, while Japan's Nikkei 225 was closed. European bourses are sharply lower, led by an 11.53% fall in the French CAC 40 index, while S&P 500 futures are down 0.41%. The US 10-year yield is up 3 bps to 3.98%.
EURUSD started yesterday at 1.1014 and finished at 1.0947. Prices consolidated the losses in a 1.0920-1.0966 band overnight. December's disappointing unemployment figures from Germany weighed on the single currency, as did weak stock markets.
Similarly, GBPUSD saw a drop from 1.2760 to 1.2620 on Tuesday, then traded cautiously in a 1.2615-1.2653 range overnight. The sell-off was fueled by an increased appetite for US dollars, driven by concerns that expectations for a US rate decrease may be overstated.
USDJPY surged from 141.86 to 142.88, despite a holiday in Japan, supported by the rally in the US 10-year Treasury yield.
AUDUSD traded negatively in a 0.6730 to 0.6771 range due to broad US dollar demand and weaker commodity prices.
Today's US data includes ISM Manufacturing PMI and JOLTS job openings.
