- Mildly hawkish FOMC minutes sink equities and lift greenback.
- ADP Employment data ahead.
- US dollar opens slightly lower compared to Wednesday close.
USDCAD: open 1.3321-25, overnight range 1.3317-1.3361, close 1.3354, WTI $73.39, Gold, $2047.67
The Canadian dollar is being whipsawed by external forces, particularly yesterday's release of the minutes of the December 13 FOMC meeting.
Market participants got a rude awakening after the minutes revealed a somewhat hawkish outlook for US interest rates, particularly when compared to market expectations. Traders have priced in a total of 150 basis points in Fed rate cuts by the end of this year. They still expect such a move, but the odds were lowered after the minutes had a mixed to hawkish bias.
The FOMC continues to be concerned that inflation remains well above their 2.0% target and warned that it would maintain restrictive monetary policy until inflation showed a sustained downward trend. The war in the Middle East, attacks on Red Sea shipping, and evidence that the Hamas/Israel war is spreading into other countries created heightened uncertainty around the Committee members' economic outlooks.
The minutes also repeated that future decisions would be data-dependent, meaning markets may react more violently when data deviates sharply from estimates. Today's release of the ADP employment report for December and the weekly jobless claims could be examples.
Analysts are forecasting a 115,000 gain in ADP, while weekly jobless claims are expected to fall by 2,000 to 216,000.
The Canadian dollar did not get much support after West Texas Intermediate (WTI) oil prices rebounded from yesterday's low of $69.52/barrel to $74.00/b overnight. The gains were due in part to reports that Opec and friends will meet on February 1 to discuss price support strategies.
EURUSD traded in a 1.0915-1.0972 range, supported by better-than-expected Composite and Services PMI data (Eurozone Composite PMI 47.6 vs. Nov: 47.6, Services PMI Index 48.8 vs. Nov: 48.1).
GBPUSD rallied from 1.2657 to 1.2730 after robust December Services PMI rose to 53.4 from 52.7 previously. S&P Global economists said, "The December data indicated that the UK service sector ended last year on a high."
USDJPY jumped from 142.86 to 144.25 due to the somewhat hawkish FOMC minutes and because of a weak Services PMI report (actual 47.1 vs. 47.6 in November).
AUDUSD was adrift in a 0.6732-0.6761 band due to broad US dollar demand and lower commodity prices.
US ADP employment and Weekly jobless claims reports are ahead
