– Sunny days-global equity indexes rally.
– Loonie soars as CAD/US interest rate spreads narrow.
– US dollar trading defensively but JPY sharply lower.
USDCAD: open 1.3748, overnight range 1.3748-1.3791, close 1.3785, WTI $74.03, Gold, $2394.39
The Canadian dollar is back from the brink. After nearly falling off a cliff on Friday, the Loonie has recouped all its losses and then some, thanks to a semblance of calm returning to global financial markets.
The market turmoil was spurred by Friday’s weaker-than-expected nonfarm payrolls report, which raised fears that the Fed was behind the curve and could lead to a recession rather than a soft landing. However, those fears eased with Wall Street rebounding yesterday.
Positive sentiment got an added lift after a Bank of Japan Deputy Governor downplayed the risk of another rate hike. Shinichi Uchida said, “the bank will not raise its policy interest rate when financial and capital markets are unstable.” His comments lifted Japanese stocks, sank the yen, and improved the global risk outlook.
The Canadian dollar got an added benefit from the narrowing of the CAD and US 10-year interest rate spread.
The Bank of Canada’s Summary of Deliberations from the monetary policy meeting on July 24 is released this morning. Analysts will be dissecting the report for clues to validate their belief that the BoC will cut rates two more times before year-end. In addition, Ivey PMI data is on tap.
Asian equity indexes (except those in China) closed with gains. Japan’s Topix rose 2.26%, while Australia’s ASX 200 gained 0.25%. European bourses are higher, with the German DAX up 1.17%, which is a good intraday move but still below its combined Friday-Monday loss. The same holds true for the S&P 500. It closed yesterday with a gain of 1.04%, and S&P 500 futures are up 1.11% this morning. Even so, the combined Friday-Monday S&P 500 loss was 4.8%.
EURUSD is drifting aimlessly in a 1.0905-1.0933 range. German data was mixed. Industrial production rose 1.4% m/m, but exports fell 3.4% in June.
GBPUSD is crawling higher inside a 1.2680-1.2737 range due to improved risk sentiment. Higher-than-expected UK housing prices (actual 0.8% m/m, forecast 0.3% m/m) provided a bit of support.
USDJPY soared from 144.30 to 147.90, then dropped to 147.01 in NY. The dovish BoJ comments fueled the rally.
AUDUSD caught a modest bid and rose from 0.6510 to 0.6573, with prices underpinned by higher commodity prices.
NZDUSD was the best performing G-10 currency since Tuesday’s NY open with a gain of 1.68%. NZDUSD jumped to 0.6025 from 0.5943 after employment data reported that the unemployment rate rose to 4.6% from 4.3%, and the labor cost index ticked higher to 0.9% q/q. The news downgraded RBNZ rate cut risks at next week’s meeting.
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