- Euro area data weaker than expected
- Fall-out from FOMC meeting fueling US dollar gains.
- Canadian dollar outperforms commodity bloc but still under pressure
USDCAD Snapshot: Open 1.2787-1.2791, Overnight Range-1.2715-1.2795, previous close 1.2742, WTI open $86.91, Gold open $1787.34
The Canadian dollar continued to sink overnight. The fall-out from the hawkish FOMC meeting continues to reverberate through financial markets after Fed Chair Powell brought balance sheet reduction into the discussion. He was very vague on details, but it was enough to concern traders.
CPI hit 7.0% y/y in December and analysts are concerned about the pace and size of rate increases that will be needed to tame the inflation beast. Those concerns fueled equity market selling, which were exacerbated by month-end concerns.
Volatility is the name of the game on Wall Street. Yesterday’s roller-coaster price action mirrored that of the previous days, leading to the CBO VIX index making a one-year high on Wednesday. Asian equity markets closed mixed. Australia’s ASX 200 and Japan’s Nikkei 225 index closed higher while Chinese indexes lost ground. Chinese New Year celebrations begin Monday and will continue until January 31 to February 15.
European bourses are deep under water weighed down by month-end flows, poor risk sentiment, and weak Eurozone data. Gold continues to retreat as rate hike fears trump geopolitics, and WTI oil remains bid. The US 10-year Treasury yield is a tad firmer at 1.832%.
EURUSD traded to a nineteen-month low, falling from 1.1155 to 1.1122. Prices were weighed down by weaker than expected Eurozone Economic Sentiment, Industrial Confidence, Services Sentiment, and German Q4 GDP, which fell 0.7% q/q. Analysts attribute the poor readings to Omicron and supply chain issues. EURUSD technicals are bearish below 1.1270.
GBPUSD traded erratically in a 1.3367-1.3414 range. Selling pressure from broad US dollar demand, geopolitical tensions, and UK political problems are offset to a degree by expectations for a hawkish Bank of England outcome next week. A 0.25% rate hike is expected.
USDJPY continues to trade with a bid, rising from 111.28 to 115.68 in early NY markets. Prices are underpinned by broad US dollar strength and rising US Treasury yields.
AUDUSD is at the bottom of its overnight 0.6969-0.7045 range. Prices may find a bid soon ahead of the RBA meeting. Some economists expect a mildly hawkish shift to the RBA outlook, which would support trader views for RBA rate hikes in 2022, despite Governor Lowe’s assertions to the contrary.
US PCE, ECI, and Michigan consumer sentiment reports are due.
