- 10-year Treasury yield hits 5.04% before trickling lower.
- Odds for Fed rate hike at 92%.
- US dollar has a risk aversion bid
USDCAD open: 1.3906, overnight range 1.3897-1.3919, close 1.3901, WTI 103.51, Gold 4,269.14.
The Canadian dollar traded sideways as risk aversion increased ahead of Wednesday’s Fed decision and as the Middle East conflict continued to widen.
Canadian inflation provided few surprises yesterday, with headline CPI holding at 3.0%, unchanged from July and in line with expectations. The data offer the BoC little justification for raising interest rates.
Mark Carney used his Canada Investment Summit to announce a new tax strategy and a series of incentives intended to attract investment. The government is targeting $1.0 trillion in new investment. Carney also said he wants to restart trade discussions with the US, while making it clear that efforts to diversify Canada’s trade relationships will continue.
WTI traded in a $101.84-$104.21 range and was at $102.84 in early NY as the latest military escalation in the Middle East added to concerns over regional oil supplies.
Asian equities finished higher, with Japan’s Topix advancing 0.74%, the Hang Seng gaining 0.45% and Australia’s ASX 200 adding 0.10%.
As of 7:30 am, European markets are in the red. The UK FTSE 100 has lost 0.16%, France’s CAC 40 is down 0.20%, and Germany’s DAX is flat. S&P 500 futures have lost 0.18%, the 10-year Treasury yield is 5.005%, and the DXY is 99.58.
EURUSD drifted in a 1.1527-1.1555 band, fading yesterday afternoon's New York bounce and surrendering most of that advance overnight. EURUSD stayed defensive due to broad-based dollar demand combined with climbing oil prices and jitters over a Fed rate decision due Wedesday. Germany's ZEW Economic Sentiment Survey nudged up to 34.7 from 34.2, still short of the 37 economists had penciled in, and while some analysts read that as a tentative sign of stabilization, rising energy costs continue to weigh on the outlook.
GBPUSD slid through a 1.3474-1.3506 range, tracking the single currency lower for much the same reasons However, the prospect that the Bank of England meeting on Thursday is more dovish than expected is weighing on the currency. UK employment figures for July did little to move the needle, with the jobless rate steady at 4.9% and hiring slowing to 67,000 positions added versus June's 83,000.
USDJPY surged in a 154.21-155.23 band as US Treasury yields climbed and traders priced in a 92% probability that the Fed hikes rates later today. A Fed move would offset part of the lift USDJPY might otherwise get from Friday's expected Bank of Japan hike, and that offset would deepen further should the BoJ statement lean dovish.
AUDUSD consolidated in a 0.7117-0.7143 range, held back by caution ahead of today's Fed decision and a broader souring in risk appetite even as the RBA maintains its hawkish tilt. Most analysts still expect the RBA to deliver a 25 bp hike on September 29.
The only Canadian data out today is Wholesale sales. In the US, NY Empire Manufacturing Index numbers are due.
