– Greenback’s post-FOMC minutes rally continues overnight.
– US CPI and weekly jobless claims are on tap.
– US dollar opens steady to higher-CAD underperforms.
USDCAD: open1.3733, overnight range 1.3598-1.3636, close 1.3713, WTI $74.38, Gold, $2617.38
The Canadian dollar slide extended overnight but its recent moves are becoming extremely overdone. The Canadian dollar is suffering because of the sharp differences between the domestic and US economies. While the US economy is growing relatively strongly, creating new jobs and increasing consumer spending, the Canadian economy is sluggish and barely avoiding a recession. Canadian job gains cannot keep pace with the rising population. The health care system is under severe strain and a housing crisis is impacting the entire country.
The Bank of Canada needs to quickly and aggressively slash interest rates to try and breath some life into the economy. The risk of deep rate cuts contrasts with the US outlook where yesterday’s FOMC minutes suggested the Fed would cut rates at a slower pace moving forward. The discussion revealed a more nuanced, cautious approach overall. Some members pushed for a more gradual path, reflecting their concerns about prematurely easing monetary policy.
Today, US monthly core-CPI number is expected to rise 0.2%, a tick below the 0.3% increase in August. The results will bolster the argument that inflation is on a downward trend. Weekly jobless claims are projected to rise by 5,000 to 230,000. If inflation rises more than expected and jobless claims fall, the US dollar rally will accelerate as the results could derail expected rate cuts in November. Bond traders have re-assessed their rate cut out outlooks and lifted the US 10-year Treasury yield to 4.09%.
EURUSD is trading cautiously within the 1.0928-1.0947 range, influenced by concerns that the FOMC may not be as dovish as initially thought, despite the recent 50 basis point rate cut. Traders are now focusing on upcoming US inflation and jobless claims data for further guidance.
GBPUSD remains in a narrow range between 1.3062 and 1.3089, with traders awaiting US data today and UK data later in the week. Comments from BoE Governor Bailey hinting at aggressive rate cuts continue to limit gains.
USDJPY rose to 149.55 in Asian trading but fell to 148.81 in early NY sessions, with market participants responding to speculation that the BoJ may consider rate hikes, despite dovish comments from key Japanese officials.
AUDUSD moved sideways within a 0.66712-0.6743 range, supported by expectations of upcoming Chinese stimulus. However, FOMC minutes indicating less dovishness than expected capped gains.
