- Lower than expected US CPI triggers massive risk-on rally
- Partial holidays in Canada and USA for Remembrance/Veterans Day
- US dollar adds to yesterday’s large losses
USDCAD snapshot open 1.3308-12, overnight range 1.3286-1.3359, close 1.3321, WTI $89.56, Gold $1758.68
The Canadian dollar had a “Red Bull” moment-it got its wings. It soared 1.8% since Thursday’s NY open.
US October inflation rose 7.7% y/y compared to expectations for an 8.0% increase. The better-than-expected result fueled speculation the Fed would be slowing the pace of rate increases and that the “terminal” or peak fed funds rate will be lower than forecast.
S&P futures surged 3.0% in the wake of the data and the S&P 500 index closed with a 5.4% gain. The tech-heavy Nasdaq did better and finished the session up 7.35%. Equity bulls were encouraged by a 0.30% fall in the US 10-year Treasury yield, from 4.11% to 3.81%.
The US dollar plunged and lifted commodity prices. Gold (XAUSUD) rose from Thursdays low of 1704.20 to $1766.44 in NY today while West Texas Intermediate (oil) climbed to $89.54 from $85.21/barrel.
USDCAD plummeted from 1.3560 prior to the release of the US October inflation data to a low of 1.3286 overnight.
The reaction to just one piece of data appears extreme. Inflation, at 7.7% y/y is well-above the Fed’s 2.0% target and there hasn’t been much if any change to many of the factors that led to higher prices. The Russia and Ukraine war continues, and Russian oil sanctions are still in place. China has eased some covid protocols, but the policies are still draconian and impacting supply chains.
Fed Chair Jerome Powell warned in his press conference on November 2, “There is significant uncertainty around that level of interest rates. Even so, we still have some ways to go, and incoming data since our last meeting suggest that the ultimate level of interest rates will be higher than previously expected.
Bank of Canada Governor Tiff Macklem seems to be on board for further rate hikes. Thursday, he said that the labour market is overheating and needs to be rebalanced. “The tightness in the labour market is a symptom of the general imbalance between demand and supply that is fuelling inflation and hurting all Canadians.”
EURUSD traders bought the “US rate peaking” story hook, line, and sinker and lifted EURUSD from 0.9937 yesterday to 1.0296 in NY today.
The Economic and Financial Affairs Council raised its CPI forecast to 6.1% for 2023 and warned the EU would be in a recession.
GBPUSD soared from 1.1356 Thursday to 1.17244 in NY due to broad US dollar selling. Traders ignored weak UK data, partly because it wasn’t as bad as forecast. The UK economy shrank 0.2% in the three months to September.
USDJPY plummeted to 138.78 from 146.50 yesterday which has to make BoJ officials smile. They have turned a tidy profit after selling $42 billion USDJPY in the 148.00-152.00 area.
AUDUSD and NZDUSD rode the positive risk sentiment wave with AUDUSD rising from 0.6393, pre-CPI to 0.6678 today., making it the best performing major G-10 currency today.
The Michigan Consumer Sentiment report is due.
