- Canadian inflation data due today.
- Risk sentiment turns negative.
- US dollar rallies across the board-AUD underperforms,
USDCAD: open 1.3493-97, overnight range 1.3423-1.3500, close 1.3426, WTI $73.20, Gold, $2040.90.
The Canadian dollar accelerated lower overnight with the souring of global risk sentiment due to a plethora of central banks pushing back against rate cut enthusiasm. In addition, a Houthi missile struck a US-owned container ship, which raised concerns of expanding hostilities in the Middle East.
Global equity markets tumbled, partly because analysts at JPMorgan Chase warned that lending revenue will be capped by the peak in interest rates. That was enough to sink Asian equity markets. The Australian ASX 200 fell 1.02% while Japan’s Nikkei 225 index dropped 0.79%.
European bourses opened negatively and continued to slide but have started clawing back some losses. The German Dax index is down 0.32%, which is much better than the 0.62% decline a few hours ago.
Former US President Donald Trump is looking like a sure bet to lead the Republicans in the November election. He won the Iowa caucus vote by a landslide, garnering more votes than the other three contenders combined.
The Bank of Canada released its Canadian Survey of Consumer Expectations (CSCE) and the Business Outlook Survey (BOS) yesterday. The results reinforce arguments for the BoC to leave interest rates unchanged for now, before cutting them in March. However, policymakers will be unhappy to see that consumer inflation expectations remain high.
Canada inflation is expected to have fallen by 0.3% m/m in December, which at first glance is pretty good. However, Scotiabank economists point out that the number is not seasonally adjusted. When it is seasonally adjusted, CPI will rise 0.3% m/m.
EURUSD retreated to 1.0874 from 1.0951 despite hawkish comments from many ECB officials pushing back against the timing of expected rate cuts. Rate cut expectations were behind the mild improvement in the Eurozone and German ZEW economic surveys.
GBPUSD traded in a 1.2620-1.2766 range overnight due to broad US dollar strength and soft employment wage data. UK average earnings rose just 6.5% 3 month/y/y compared to 7.2% previously, which reinforces the argument that the need for higher interest rates has passed.
USDJPY traded higher in a 145.69-146.75 band because of weak domestic PPI data (actual 0.0% vs 0.3% in November) and a higher US 10-year Treasury yield (3.96% to 4.005%).
AUDUSD traded negatively in a 0.6596-0.6665 range due to negative risk aversion and lower commodity prices, due to broad US dollar demand and falling commodity prices.
