- Recession worries roil markets
- Treasury yields slide
- US dollar opens on a mixed note ahead of weekly jobless claims data
USDCAD Snapshot open 1.2974-78, overnight range 1.2938-1.2986. close 1.2947, WTI open $105.15, Gold open $1,831.84
The Canadian dollar is spinning its wheels as traders struggle to find a direction. USDCAD traded in a 1.2870-1.3070 for over a week, and even hotter than expected inflation data could not break the range.
Yesterday, Statistics Canada reported, “Canadians continued to feel the impact of rising prices in May as consumer inflation rose 7.7% year over year. This was the largest yearly increase since January 1983 and up from a 6.8% gain in April. Excluding gasoline, the CPI rose 6.3% year over year in May, after a 5.8% increase in April. Price pressures continued to be broad-based, pinching the pocketbooks of Canadians and in some cases affecting their ability to meet day-to-day expenses.”
That isn’t good news for borrowers. Bank of Canada Governor Tiff Macklem said he is committed to lowering and just two weeks ago, rates will rise more frequently or “It may need to take a larger step.” A 0.75% rate hike is universally expected at the July 13 monetary policy meeting so the latest inflation reading suggests a 1.00% hike is quite possible.
The Canadian dollar did not benefit much from the possibility of more aggressive rate hikes as the focus was on Fed Chair Jerome Powell’s Congressional testimony. Mr Powell warned that the Fed’s inflation battle could trigger a recession. Even worse, a Fed analyst released a report that predicted the odds of a recession in the next four quarters were 50%, which rose to 67% in two years.
The news knocked Treasury yields for a loop and sparked safe-haven demand for US dollars. The US 10-year Treasury yield slid from 3.30% Tuesday to 3.13% in NY today.
In Norway, Norges Bank surprised traders by raising interest rates 0.50% rather than the 0-.25% expected.
EURUSD traded in a 1.0484-1.0580, with the bulk of the losses occurring after weaker than expected French, German, and Eurozone PMI data.
GBPUSD fell to 1.2172 from 1.2265 due to broad US dollar demand, weak UK PMI data, and fears the UK economic slowdown may be worse than expected, due to Brexit fall-out. Bloomberg reported that London lost 40% of its IPO business to European cities.
USDJPY plunged from 136.21 to 135.14 on the back of sharply lower US Treasury yields. However, losses were contained due to the BoJ’s dovish monetary stance.
NZDUSD outperformed against AUDUSD after New Zealand’s Fonterra raised the forecast for Farmgate milk prices in 2022-2023.
US weekly jobless claims are expected at 227,000.
