- RBA hikes rates 0.25%
- US 10-year Treasury yield flirting with 3.0%
- US dollar opens
USDCAD Snapshot: open 1.2867-71, overnight range 1.2838-1.2881, previous close 1.2879, WTI open $101.53, Gold open $1,880.68
The Canadian dollar rose in early Asian trading than drifted lower steadily until the New York open Trading was quieter than usual in Asia due to holidays in Japan and China, but the Reserve Bank of Australia created a stir.
In Europe. The major equity markets are trading with a modestly firmer bias led by a 0.82% gain in the French CAC index. The UK FTSE 100 index dipped 0.37%. S&P 500 and DJIA futures are close to unchanged. WTI oil prices softened, gold slumped, and the 10-year Treasury yield inched down to 2.988%.
The Canadian dollar direction is dictated by broad US dollar sentiment and that sentiment is mixed to positive as ahead of tomorrow’s FOMC meeting. The Fed is expected to raise rates by 0.50%, making the fed funds target 0.75-1.0%. Fed Chair Jerome Powell never believed inflation was anything more than “transitory” until just recently. Mr Powell has “drank the Kool-Aid” and may now talk about how inflation from supply imbalances became entrenched in other areas.
The US dollar is in demand as US rate hikes may rapidly outpace those in other countries.
The Reserve Bank of Australia (RBA) got the ball rolling when they hiked the Overnight Cash Rate (OCR) to 0.35% from 0.10%. The move caught traders off-guard. Governor Philip Lowe has insisted for many, many months that Australia was different and the insisted the central bank could afford to be patient as it assessed incoming data. Just two months ago, Mr Lowe was arguing that there was no need to raise interest rates until the end of 2023.
He was wrong.
Mr Lowe admitted as much in a speech following the interest rate statement but blamed the mistake on trying “to do everything it could to help the country “ get through that pandemic. He added “We judged that the economic damage from the pandemic was likely to require that interest rates remain at very low levels for years.
AUDUSD firmed ahead of the RBA meeting rising from 0.7052 at the close to 0.7147 immediately after the statement, then dropped to 0.7103 in NY, as the reality is the rate hike was not that large.
Today’s US economic calendar includes JOLTS jobs survey and factory orders.
