- Rising US Treasury yields boost greenback.
- Bank of England hikes 25 bps to 5.25%.
- US dollar opens with gains across the board.
USDCAD: open: 1.3366-70, overnight range 1.3335-1.3377, close 1.3350, WTI 79.46, Gold $1936.54
The Canadian dollar added to its Wednesday’s losses overnight, after falling steadily since Monday afternoon.
The Canadian dollar is collateral damage in the wake of the Fitch downgrade of US debt which came on the heels of the July 31 Treasury announcement that it planned to borrow $1.0 trillion in Q3. The US 10-year Treasury yield soared to 4.147% from 4.023% Tuesday morning, while the US dollar rose against all the major G-10 currencies.
It appears that traders are spooked because American debt was always considered the safest, lowest risk investment, and Fitch is tarnishing that image. Treasury Secretary Janet Yellen is not impressed. She said she “strongly disagrees” with the decision. JPMorgan Chase Chairman Jamie Dimon downplayed the downgrade saying, “It really doesn’t matter that much, because it is the market not rating agencies that determines borrowing costs.”
The Fitch downgrade was one factor fueling the negative risk sentiment, but it wasn’t alone. The ADP Employment report showed that the labour market was still very tight after new private sector jobs rose 324,000 in July, compared to the forecast for a 189,000 increase. Today, traders will be looking for further confirmation of a tight labour market when weekly jobless claims data is released.
EURUSD had a negative bias and meandered in a 1.0913-1.0949 range. Risk aversion sentiment led to Eurozone data like Services PMI and German Retail Sales being ignored.
GBPUSD drifted lower overnight, falling from 1.2728 to 1.2671 in NY, ahead of the Bank of England monetary policy decision. Prices dropped to 1.2629 after the BoE raised rates 25 bps to 5.25%.. It was not a unanimous decision.
USDJPY bounced erratically in a 142.77-143.88 range after the Bank of Japan intervened in the bond market. The BoJ offered to buy an unlimited amount of 5 and 10 year bonds to limit rising JGB yields.
AUDUSD traded in a 0.6514-0.6556 and failed to garner any benefit from the better than expected Caixin China Services PMI and from the news that Australia's trade surplus widened.
