July had a lot going on. Markets survived the French and UK elections, while escalating US election politics and Middle East tensions made traders very nervous.
The fallout from President Joe Biden’s June 28 debate with Donald Trump reverberated for most of the month, causing Democrat hopes for re-election to plunge. In France, fears of a far-right uprising petered out after a cobbled-together left-wing alliance and President Macron’s centrist alliance thwarted Marine Le Pen’s National Rally party. Politicians jockeyed for positions in the new government until the start of the 2024 Paris Olympics on July 26.
The UK election came and went without any drama, as expectations for a massive Labour Party victory proved true. A disgruntled 20-year-old from Pennsylvania attempted to assassinate Donald Trump at a campaign rally. His shot clipped Trump’s ear but did no lasting damage. A Secret Service sniper’s retaliatory shot was far more accurate.
July ended with the Bank of Japan raising rates to 0.25%, igniting another massive unwinding of carry trades which sank USDJPY.
August is only a few days old, and stock and bond market volatility has gone through the roof. A free-falling Wall Street sparked massive sell-offs in indexes around the globe.
The USD and Federal Reserve
The US dollar index (DXY) slid steadily in the first half of the month on rate cut hopes. The downward drift stalled after a series of economic reports suggested that inflation was sticky and employment relatively strong. That changed at the end of July when the FOMC meeting ended with the Fed signaling a rate cut on September 18. The DXY resumed its slide and accelerated after a series of weaker-than-expected inflation and employment data suggested the Fed would need to cut faster and deeper. Disappointing quarterly earnings from tech giants, rate cut moves by the People’s Bank of China, and elevated Israel and Iran tensions drove US 10-year Treasury yields below 3.90%. August will continue to be a “risk-off” month with price action subject to wide swings, as it is also when many senior traders take vacation. The highlight of the month will be Fed Chair Jerome Powell’s comments at the Jackson Hole Symposium on August 22-24.
The Canadian Dollar and Bank of Canada
The Canadian dollar rallied in the early part of the month then traded lower until the last day when month-end flows gave it a bit of a boost.
Compared to July’s opening and closing levels, the Canadian dollar lost a mere 0.7%. It was a stellar performance compared to other commodity bloc currencies, which lost around 2.3% each, even after the Bank of Canada cut its benchmark rate to 4.5%. The BoC continues to insist that future rate cuts are not a sure thing, but the reality is they will likely cut rates twice more before the year ends. Canada’s unemployment rate is rising and economic growth is stalling. The Canadian dollar will trade defensively throughout August with direction determined by prevailing US dollar sentiment.
Oil Prices
Oil prices are trading poorly. West Texas Intermediate drifted in an $80.00-$84.50 range for the first three weeks of July. Prices were underpinned by falling US weekly crude inventories and rising tensions in the Middle East. Then the focus turned to China’s economic woes. The economy is struggling so much that the PBoC announced rate cuts and other stimulus packages. That spooked traders. Lower Chinese oil demand in the face of OPEC’s planned production increases risks supply outstripping demand, and WTI closed on July 31 at $77.97. The outlook for August is negative as long as global equity markets continue to fall.
Bank 2024-USD/CAD Q3 2024-USD/CAD Q4
Scotiabank* 1.3700 1.3800
BMO 1.3800 1.3700
CIBC 1.3900 1.3800
TD Bank* 1.3900 1.3900
National Bank 1.4000 1.4200
*Forecast is based on last month. Forecast Table is for mid-market rates, and subject to change anytime.
