- Soaring US Treasury yields drive greenback higher
- Iran and US talks appear to have stalled
- US dollar opens higher across the board
USDCAD open (6:00 am): 1.4258 overnight range 1.4225-1.4258, close 1.4233, WTI $92.29, Gold $4,153.42.
The Canadian dollar plunged yesterday and extended its losses overnight. The move was driven primarily by another sharp rise in US Treasury yields, with the 10-year yield jumping to 5.36% from 5.202% and reaching its highest level in 24 years.
The CAD/US 10-year yield differential also moved decisively against the Canadian dollar, widening to -134.9 from -128.7 the previous day and providing another reason for USDCAD buyers to stay in control.
Fed officials added fuel to the move. Governor Lisa Cook said inflation has remained too high for too long, while Minneapolis Fed President Neel Kashkari estimated inflation at roughly 3% and projected one more rate increase this year followed by another next year. New York Fed President John Williams also said another hike "late this year" could be appropriate.
Oil did not provide the Canadian dollar with much support despite WTI jumping from $88.81 to $92.26. The gains was on the news that Houthi forces attacked Saudi Arabia’s Abqaiq oil facility and US-Iran negotiations stalled. Secretary of State Rubio reportedly demanded that Iran’s UN delegation leave the US immediately.
Treasury yields remain the key force driving markets today, with the ISM manufacturing report providing the next test of US economic resilience. Weekly jobless claims and Challenger job-cut figures will add another layer to the labour-market picture.
The Fed speakers will also be closely watched. Governors Christopher Waller and Lisa Cook, along with Vice Chairs Philip Jefferson and Michelle Bowman, are all due to speak. Further hawkish commentary would reinforce the recent rise in yields and provide another tailwind for the US dollar.
Asian equity markets were mixed, with China closed for the Golden Week holiday. Japan’s Topix gained 0.57%, while Australia’s ASX 200 dropped 1.99%, with all sectors ending lower.
As of 7:30 am, the UK FTSE 100 was down 1.23%, the French CAC-40 had lost 0.80% and the German DAX was 0.28% lower. S&P 500 futures are up 0.16%, the US 10-year Treasury yield was 5.301%,and the DXY is 101.86.
EURUSD traded in a 1.1266-1.1337 band. Prices were steady through the Asian session before coming under renewed pressure in early New York trading. The euro was hit by another jump in Treasury yields and higher crude prices, while yesterday’s hotter inflation readings from Germany, Italy and France have quickly faded from the market’s attention. Today’s Eurozone manufacturing PMI improved to 52.9 from 52.7, but the gain provided little support.
GBPUSD traded negatively in a 1.3193-1.3273 range and remains under pressure as the yield differential increasingly favours the US dollar.
Rising Treasury yields and a hawkish Fed contrast with a less supportive Bank of England outlook, leaving sterling struggling to attract buyers. PM Andy Burnham also stepped into the Brexit debate by arguing that leaving the EU has done more harm than good, prompting plenty of criticism for stating what many Britons already know.
USDJPY rose from 157.32 to158.45 due to the widening US-Japan yield differentials which favoured the dollar. Japan’s Tankan survey offered little encouragement to yen bulls, despite sentiment among large manufacturers improving to 24 from 22. The reading still missed the 25 forecast and the outlook measure was also weaker than anticipated. Following yesterday’s unexpected decline in industrial production, the data suggest the BoJ may take a more measured approach to policy normalization, despite the hawkish tone contained in the September Summary of Opinions. Intervention remains the elephant in the room and should discourage an unchecked move higher.
AUDUSD was steading in a0.6931-0.6956 band even after Australia reported a sharp narrowing in its trade surplus to A$0.5 billion versus expectations of A$2.0 billion. The mixed inflation numbers released yesterday have added to the RBA’s policy headache, with price pressures remaining sticky while the broader economic picture offers no compelling reason for aggressive tightening. That combination left the Australian dollar going nowhere.
