- Traders expect a 25 bp rate cut from Bank of Canada.
- JOLTS Survey is focus for traders today.
- US dollar consolidating yesterday’s moves.
USDCAD: open 1.3556, overnight range 1.3533-1.3563, close 1.3552, WTI $70.00, Gold, $2481.72
The Canadian dollar traded negatively yesterday as it was caught up in a wave of negative risk sentiment. Disappointing US ISM Manufacturing PMI data raised the spectre of a US “hard-landing,” and equity traders sold stocks. The selling pressure was exacerbated after news that the US Department of Justice had issued subpoena’s to Nvidia as part of an antitrust investigation.
It is Bank of Canada (BoC) monetary policy meeting day. The BoC is universally expected to cut rates by 25 bps to 4.25% and issue a dovish statement. Governor Tiff Macklem’s post-meeting press conference will set the tone for Canadian rates going further. He is likely to talk about the weakening labour market and the output gap and set the table for additional rates cuts.
The impact of the BoC decision on the Canadian dollar may be short-lived as it is the US Fed that is driving US dollar movements. Fed Chair Jerome Powell essentially pre-announced at 25 bp rate cut for September 18 as he shifted the Fed’s focus from inflation to rising unemployment concerns. That’s why today’s JOLTS survey data is important. The survey is expected to show Job Openings declined to 8.1 million from 8.184 million in June. A lower than expected result will increase chatter for a 50 bp rate cut at one meeting before year end.
Oil prices are tumbling. WTI fell from 74.16 yesterday to 69.19 in Europe before rallying to 70.84 in early NY. Prices are depressed because of Opecs plans to raise production starting October 1, even as weak Chinese growth suggests weaker demand.
Asian equity markets closed with steep losses led by a 4.24% drop in Japan’s Nikkei index. European bourses are deep in the red with the French CAC 40 index losing 0.96%. S&P 500 futures are pointing to a negative open on Wall Street as they are down 0.42%.
EURUSD traded in a 1.1039-1.1063 range garnering a bit of support from strong Eurozone composite PMI data.
GBPUSD got a boost and rose from 1.3101 and 1.3128, following better-than-expected UK Services PMI data. (actual 53.7, forecast 53.3) S&P Global attributed this to a recovery in the UK service sector, driven by improved economic conditions and political stability.
USDJPY traded defensively in a 144.75–145.56 band. The yen gained strength due to safe-haven demand, triggered by the turmoil in US equity markets. The pair also moved in line with US 10-year Treasury yields, which remained steady at 3.815%.
AUDUSD was under pressure in early Asian trading, dropping from 0.6710 to 0.6685 due to mixed Manufacturing and Services PMI data. However, the currency recovered to 0.6716 by the time the New York session opened. Australia's Q2 GDP grew by just 0.2% q/q and 1.0% y/y, a slightly better figure than the RBA's forecast but still the weakest annual growth rate since the 1990s.
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