- Fed officials push back against pivot talk
- Opec slashes production by 2.0 m/bd
- US dollar firms ahead of Friday NFP report
USDCAD snapshot: open 1.3666-70, overnight range 1.3567-1.3670, close 1.3618, WTI $87.61, Gold $1714.84
The Canadian dollar pivoted yesterday. A promising rally ended abruptly on the heels of Fed-speak, US economic data, and positioning for Friday’s US nonfarm payrolls report.
Wednesday started with traders in a “risk-on” mood. Weaker than expected ISM Manufacturing PMI on Monday reopened the “Fed-pivot” story which sank the greenback and Treasury yields while lifting equities.
Fed officials pushed back against that notion on Tuesday and Wednesday and their opposition got added support when ISM Services PMI and JOLTS employment report were stronger than forecast.
The US dollar rallied across the board and the Canadian dollar was collateral damage.
The Canadian dollar may get a pivot story of its own today, when Governor Tiff Macklem delivers a speech titled “Current economic outlook” at 11:50am ET. Some analysts are concerned that the BoC will follow the Reserve Bank of Australia’s (RBA) lead and slow the pace of rate hikes while others suspect they will follow the Reserve Bank of New Zealand and continue with aggressive increases.
However, the Canadian dollar direction is not being determined by domestic economic data or even BoC monetary policy, but by the outlook for US interest rates.
The Fed is expected to continue to raise rates through the end of the year and into 2023. A series of Fed policymakers speaking on Tuesday and Wednesday dismissed speculation that the Fed is considering a pivot. Expect more pushback today from Cleveland Fed President Loretta Mester, Chicago Fed President Charles Evans, and Federal Reserve Governor Christopher Waller.
The Canadian dollar is getting any benefit from West Texas Intermediate (WTI) oil prices which climbed from $81.35 Monday to $88.63/barrel today. The rally is due to Opec slashing crude production by 2.0 million barrels/day.
EURUSD traded in a 0.9859-0.9226 range and is at the low in NY. Prices are weighed down by weak Eurozone Retail Sales and German factory orders. The minutes from the September ECB minutes showed policymakers were cautious. They debated between a 25 and 50 bp rate hike before deciding 50 bps “would large enough to signal determination in proceeding with the interest rate normalisation.”. The ECB also expects inflation to remain above target for an extended period.
GBPUSD traded with a negative bias in a 1.1246-1.1381 range. Prices are weighed down by another rating agency (Fitch) warning about a downgrade to the UK’s credit rating.
USDJPY traded sideways in a 144.40-144.75 band supported by firmer Treasury yields.
Weekly US jobless claims data is on tap.
