- Global equities attempting to bounce back from melt-down.
- Reserve Bank of Australia leaves rates unchanged, as expected.
- US dollar opens mixed after two-day rollercoaster ride.
USDCAD: open 1.3845, overnight range 1.3793-1.3857, August 2 close 1.3874, WTI $73.28, Gold, $2413.61
The Canadian dollar had a wild holiday weekend, which kicked off Friday when the US nonfarm payrolls report was far weaker than expected. The US only gained 114,000 jobs in July compared to the consensus forecast for a gain of 175,000. The news occurred against a backdrop of falling US Treasury yields and sharply lower equity indexes.
Global equity indexes were in free fall Friday and then melted down again on Monday, sparking a wave of safe haven asset demand. The 10-year Treasury yield dropped all the way to 3.654% by Monday from a pre-NFP level of 3.94%. The S&P followed Friday’s losses with another 3.00% decline on Monday. The US dollar index (DXY) dropped from 103.88 Friday to 101.97 on Monday before rebounding to 102.97 today.
The outsized market reaction to the NFP report was wildly overdone and likely due to poor liquidity caused by summer holidays, which is exacerbated this year by the Paris Olympics. That helps to explain this morning’s rebound, which sees S&P 500 futures climbing 0.61% in early NY.
The Canadian dollar also suffered from a drop in commodity prices. WTI oil fell to 72.81 from 74.86 due to increased fears of an oil glut from OPEC’s increased production and the rising risk of a US hard landing.
EURUSD is currently trading slightly above its overnight range of 1.0907-1.0963, continuing to build on Friday’s gains. The pair surged from a pre-FOMC level of 1.0822 to 1.1008 yesterday. The volatility in equity markets overshadowed a mix of better-than-expected German and Eurozone Composite PMI data and a weaker-than-anticipated Eurozone Retail Sales report (actual -0.3% m/m vs forecast -0.1% and May 0.1%). Narrowing ECB/US interest rate differentials and strong technicals following the break above 1.0870 are supporting the pair.
GBPUSD bounced around in a 1.2700-1.2817 range since Monday. Prices saw a little support from modestly better-than-expected services PMI (actual 52.5 vs forecast 52.4) and a robust Construction PMI report today (actual 55.3 vs forecast 52.7). That data helped to counter selling pressure from EURGBP buying.
USDJPY is trading at 144.85 in early New York after a tumultuous few days. The pair was hit hard following the disappointing NFP report, plunging from 146.67 to 141.69 yesterday and chopping between 143.62-146.37 overnight.
AUDUSD dropped to 0.6351 yesterday before rebounding to 0.6541 after the Reserve Bank of Australia (RBA) decision. The RBA left interest rates unchanged at 4.35% but issued a hawkish statement. Policymakers are not happy with inflation, which they believe remains too high. Even worse, they do not see any signs of near-term improvement. Governor Michele Bullock remarked that traders betting on a near-term rate cut "were getting a little bit ahead of themselves."
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