USD / CAD – Canadian Dollar declaring independence

– US markets closed for July 4th holiday

– Risk sentiment improvements fuels US dollar sell-off.

– US dollar trading sharply lower, except against yen.

USDCAD: open 1.3627, overnight range 1.3620-1.3643, close 1.3640, WTI $83.34, Gold, $2357.81

The Canadian dollar rallied sharply yesterday and then consolidated the gains in a quiet overnight session. The combination of weaker-than-expected US economic data and somewhat dovish comments by Fed Chair Jerome Powell on July 2 sparked a broad-based US dollar sell-off and the Loonie went along for the ride.

US employment and ISM Services reports were weaker than expected, which provided more evidence supporting the “economic slowdown” narrative. ADP reported that jobs rose 150,000 (forecast 160,000) while the Bureau of Labor Statistics said weekly jobless claims increased by 3,000 to 238,000. The ISM Services index fell to 48 in June from 53 in May, and US dollar sellers burst from the gate.

Bond traders joined the party and knocked the US 10-year Treasury yield down to 4.354% from 4.444%.

The FOMC minutes were a non-event and stale. The minutes reiterated that policymakers were data dependent, and they were unnerved by earlier data, saying, “Several participants observed that, were inflation to persist at an elevated level or to increase further, the target range for the federal funds rate might need to be raised.” However, the latest inflation data subsequent to the FOMC meeting led Fed Chair Jerome Powell to open the door to a September rate cut when he spoke in Portugal on Tuesday.

The Canadian dollar got an added boost after the CAD/US 10-year bond spreads narrowed to -76.3 today from -92.9 on July 1.

WTI oil traded with a bit of a bid, rising from 83.03 to 83.69 after the EIA reported US crude inventories fell by 12.15 million barrels last week.

Asian equity indexes closed with gains across the board, led by a 1.19% rise in Australia’s ASX 200. Japan’s TOPIX index rose 0.92% as traders bought into the idea of earlier-than-expected Fed rate cuts. European traders ignored French and UK elections and lifted stocks, led by a 0.75% gain in the French CAC-40 and a 0.72% rise in the UK FTSE 100 index. Gold prices rallied. XAUUSD has climbed from $2296.94 on June 27 to $2358.48 today.

EURUSD drifted higher in a 1.0783-1.0804 range, with traders ignoring soft German Factory orders data (actual -1.6% m/m vs. forecast 0.5%). Caution around this weekend’s French election is limiting EURUSD gains.

GBPUSD is steady in a 1.2741-1.2764 range. The UK election is expected to result in the Labour Party, led by Keir Starmer, winning 431 of the 650 seats in the House of Commons, but the result is priced into financial markets.

USDJPY traded choppily in a 160.95-161.71 range with the low occurring this morning. Wide Japan/US interest rate differentials are supporting prices, but fear of BoJ intervention, especially in holiday-thinned markets, is limiting gains today.

AUDUSD traded in a 0.6703-0.6730 range due to broad-based US dollar weakness. Prices are further supported by expectations that the RBA will leave rates at elevated levels longer than the Fed.

The US and Canadian economic calendars are empty.

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