– Hawkish Fed-speak spurs greenback rally.
– RBA raises OCR rate 25 bps-AUDUSD falls.
– US dollar recoups losses as treasury yields rise.
USDCAD: open 1.3748-52, overnight range 1.3689-1.3756, close 1.3700, WTI $79.46, Gold, $1965.99
The Canadian dollar came under renewed selling pressure yesterday and continued to fall overnight. The Canadian dollar was collateral damage as US Treasury yields recouped some losses, as usual.
On Friday, the US 10-year Treasury yield fell to 4.52% following the release of the US nonfarm payrolls data. It then climbed to 4.657% by the close of trading in New York yesterday and hovered at 4.634% early in New York trading today. These gains spurred renewed demand in the US dollar across the G-10 currencies, with the Canadian dollar also feeling the impact.
The Canadian dollar is not getting any support from oil prices. West Texas Intermediate (WTI) has fallen from $83.28 on Monday to $78.97/b in Europe. Prices recovered to $79.62/b in NY but remain well below their September 26 peak of $93.30/b. The fear of reduced global demand, especially from China, is offsetting concerns about supply disruptions from the Hamas attack on Israel and the Saudi Arabian and Russian production cuts.
Risk sentiment turned negative following comments from Fed officials Neel Kashkari and Lisa Cook. Mr. Kashkari, the Minneapolis Fed president, put a damper on Fed rate cut hopes from lower inflation when he said, “Before we declare that ‘we’re absolutely done, we’ve solved the problem,’ let’s get more data and see how the economy evolves.”
Fed Governor Lisa Cook added non-bank financial institution concerns to risks when she cautioned, “Vulnerabilities at certain NBFIs could play a key role in amplifying stress associated with tightening financial conditions and slowing economic activity.”
Sentiment was also negatively impacted when China reported weaker than expected export data which suggested that its economy was still struggling, which weighed on global growth hopes.
EURUSD traded in a 1.0665-1.0723 range. Traders ignored soft German industrial data (actual -1.4% vs forecast -0.1%) and the Eurozone PPI report (actual -12.4%).
GBPUSD slid to 1.2275 from 1.2352, extending its losses from yesterday. Bank of England Chief Economist Huw Pill appeared to agree with market predictions of an August rate cut, saying it “doesn’t seem totally unreasonable, at least to me,” which may have undermined the currency pair.
USDJPY rallied from 149.93 to 150.59 on the heels of rising US 10-year Treasury yields and widespread US dollar demand.
AUDUSD fell to 0.6409 from 0.6502 even though the RBA raised the Overnight Cash Rate (OCR) by 0.25% to 4.35%.
Today’s US economic calendar includes September trade data.