- FOMC minutes have a hawkish bias
- US -10year yields soar
- US dollar opens with solid gains vs commodity currency bloc
USDCAD Snapshot: Open 1.2763-67, Overnight Range-1.2757-1.2812, previous close 1.2657, WTI open $79.04, Gold open $1801.24
The Canadian dollar dropped after the FOMC minutes revealed the possibility of a Fed rate hike in March.
Traders reacted to this paragraph “Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated.”
The December 15 statement signaled a hawkish shift to the Fed’s bias after policymakers projected three interest rate increases in 2022, when only one had been forecast previously. However, analysts believed that when rates rose, it would be after the Quantitative Easing program ended in March. The minutes contradicted that view.
The US 10-year Treasury yield jumped to 1.746% today from 1.649% yesterday and gave the US dollar a boost. USDCAD soared to 1.2812 overnight from a pre-FOMC low of 1.2696, along with steep drops in AUDUSD and NZDUSD.
West Texas Intermediate (WTI) dropped after the minutes but managed a 3.5% rebound overnight, climbing from $76.77/barrel to $79.49/b in NY. Fall US crude inventories, supply disruption in some countries and a deep freeze in large parts of Canada and the US are underpinning prices.
The WTI gains helped the Canadian dollar outperform against the New Zealand and Australian dollars.
EURUSD fell following the FOMC minutes but stayed within the 1.1260-1.1390 range that has contained prices since December 20. German factory orders rose 3.7% m/m in November and Eurozone PPI rose 1.8% m/m. Both reports were better than expected but overshadowed by the reactions to the FOMC minutes. The longer-term EURUSD downtrend is intact while below 1.1420.
GBPUSD dropped to 1.3492 in Europe after closing at 1.3557 yesterday, then bounced to 1.3540 in NY trading. Traders shrugged off Services PMI data which posted a 10-month low of 53.6 in December, as the drop was due to Omicron. Instead, the prospect of further UK rate hikes underpinned the currency. The GBPUSD technicals are bearish while below 1.3630 with a break of 1.3490, risking a steeper slid to 1.3300.
Today’s US data includes weekly jobless claims, Factory orders, Trade balance, and ISM Services PMI.
