- Global equity indexes rally despite recession risks
- Treasury yields slide
- US dollar opens on a mixed note ahead of weekly jobless claims data
USDCAD Snapshot open 1.2960-64, overnight range 1.2960-98, close 1.2996, WTI open $105.75, Gold open $1,829.13
The Canadian dollar was a bystander as the US dollar retreated yesterday and overnight. The Canadian dollar drifted quietly even as global equity indexes surfed a wave of positive risk sentiment thanks to a bond market rally.
The US 10-year Treasury yield extended losses its losses from Tuesday’s peak of 3.30%, dropping to 3.01% in Asia. Investors bought bonds after Fed Chair Jerome Powell reiterated that US interest rates were going higher, and he couldn’t rule out a recession.
Equity traders focused on the drop in Treasury yields and bought stocks. Wall Street closed with solid gains and S&P 500 futures suggest additional gains today. European bourses are deep into positive territory with a 2.11% gain in the French CAC index, leading the pack.
The equity market rally may be just due to profit taking ahead of the weekend. A recession is hardly good news for stocks.
USDCAD spent the week in a 1.2905-1.3012 range and is trading with a mildly bullish bias this morning. Traders are ignoring the increased chances of a more aggressive Bank of Canada monetary policy response at the July 13 meeting.
Canada Retail Sales were higher than forecast in April which argues that consumers are still spending despite rising prices. Inflation was 7.7% y/y in May, far hotter than expected and it may be hot enough for the Bank of Canada to hike rates 1.00% July 13. At least that is what one JP Morgan economist said, although it is not the JP Morgan base case. A CIBC economist does not believe a “jumbo” rate hike will happen because that would be a sign the BoC is not in control.
EURUSD traded in a 1.0513-1.0554 range after closing at 1.0521. The gains are mostly due to pre-weekend profit-taking following yesterday’s losses after weaker than expected Eurozone PMI reports. EURUSD gains are limited after Germany’s Ifo survey was weaker than expected due to the Ukraine war and supply chain disruptions.
GBPUSD is near the top of its 1.2242-1.2306 range UK Retail Sales (actual -0.5% m/m vs April 0.4%) were weak, but the results are rather stale, so they were ignored. Traders also ignored reports that Prime Minister Johnson’s job is in peril again after the conservatives lost two by-elections.
USDJPY traded sideways in a wide, 134.36-135.22 range with US Treasury yield fluctuations driving price action.
AUDUSD and NZDUSD rallied after improved risk sentiment boosted commodity prices.
US New Home Sales and Michigan Consumer Sentiment index reports are ahead.
