- 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): 1.4236 overnight range 1.4209-1.4240, close 1.4222, WTI $89.06, Gold $4,185.67.
The Canadian dollar continues to edge lower despite a pause in the Treasury sell-off. The US 10-year yield has retreated from yesterday’s multi-year peak and is now around 5.23%, allowing the CAD/US 10-year yield spread to claw back a little ground. That hasn’t been enough to give the Canadian dollar much relief.
Fed officials provided plenty of noise ahead of today’s employment report, with policymakers offering sharply different views on where rates should go next. Dallas Fed President Lori Logan argued that another 50bps or more of tightening may be required, while Minneapolis Fed President Neel Kashkari expects one additional hike this year and another in 2027.
At the other end of the spectrum, Governor Michelle Bowman sees no pressing reason for another move this year, while Vice Chair Philip Jefferson said the Fed may need more time before making its next decision.
The market now gets to decide which Fed camp matters most when the NFP numbers arrive. Forecasts call for 90,000 jobs, down from August’s 162,000, with unemployment expected to remain at 4.1%.
WTI traded between $88.85 and $93.30 as traders focused on the possibility that Middle East oil exports can continue recovering despite Trump’s decision to increase the US military presence in the region.
The Wall Street Journal says the Pentagon is beefing up its Middle East presence with a third aircraft carrier strike group, more Marine Corps ships and as many as 10,000 additional troops by the end of November. So far oil traders ignored the news.
Asian equity markets closed on a mixed note. Hong Kong’s Hang Seng was hammered, falling 2.60%, while Japan’s Topix lost 0.99%. Australia bucked the trend, with the ASX gaining 0.79%.
As of 7:20 am, Germany’s Dax climbed 1.16%, France’s CAC-40 gained 0.74% and the UK FTSE 100 rose 0.32%. S&P 500 futures were 0.49% higher, the US 10-year Treasury yield was 5.23%, and the DXY was 102.03.
EURUSD traded in a 1.1231-1.1269 band and was hovering near the bottom of it ahead of today’s US employment report. Eurozone inflation accelerated sharply in September, with flash HICP rising to 3.8% y/y from 3.2%, the hottest reading in three years. Normally that sort of number would give the euro a lift, but not today. Traders remain reluctant to believe the ECB is ready to hike rates this month, leaving EURUSD vulnerable to another strong US jobs report.
GBPUSD traded in a 1.3182-1.3222 band and remained uncomfortably close to four-month lows. Sterling is caught on the wrong side of the bond market as surging Treasury yields increase the dollar’s rate advantage and keep demand for greenbacks elevated. The approaching October Autumn Budget is another headache.
USDJPY traded in a 157.48-158.22 band after topping out in Asia and surrendering ground ahead of the New York open. Tokyo inflation provided the yen with some help after headline CPI rose 2.7% y/y compared with the 2.5% forecast. Economy Minister Minoru Kiuchi added to the policy debate by declaring that Japan no longer requires the reflationary medicine prescribed during the Abenomics era. Even so, today’s US jobs numbers and their impact on Treasury yields are likely to dictate where USDJPY goes next.
AUDUSD traded in a 0.6913-0.6947 band and managed to claw its way toward the upper end of the overnight range. Sentiment is still bruised by RBA Governor Michele Bullock’s failure to deliver the hawkish message traders had hoped to hear this week.
