– Risk sentiment rises in Asia as PBoC hints at RRR cuts.
– WTI oil prices trade defensively.
– US dollar consolidates recent gains in a mixed session overnight.
USDCAD: open 1.3793, overnight range 1.3786-1.3800, close 1.3798, WTI $70.83, Gold, $2711.85
The Canadian dollar stagnated in an uninspiring overnight session, continuing to be weighed down by the divergence between Bank of Canada and Federal Reserve monetary policies. Yesterday, U.S. retail sales rose more than expected, while weekly jobless claims fell by 19,000. Both results point to a resilient U.S. economy that is likely to avoid a recession despite the earlier Fed rate hikes. The data supports Fed Chair Jerome Powell’s view that there is no need to rush into rate cuts.
This contrasts sharply with the situation in Canada. The Canadian economy is barely treading water, and job creation is not keeping pace with population growth. Domestic productivity has been declining for 10 years and is significantly lagging behind the U.S. The Bank of Canada is expected to act aggressively, cutting interest rates by 50 basis points next week and again in December. Bond traders have reacted, widening the spread between Canadian and U.S. 10-year yields to 92.1 basis points, putting additional pressure on the Canadian dollar.
WTI oil prices are trading negatively in a 70.117-71.23 range.
Asian equity indexes closed higher except for Australia’s ASX 200 which lost 0.87%. European stock indexes are in the green except for the UK FTSE 100 which is down 0.25%. S&P 500 futures are up0.23% while the 10-yeear Treasury yield is 4.113%.
EURUSD is holding steady after yesterday’s post-ECB decline, trading within the 1.0825-1.0845 range. The European Central Bank cut rates by 25 basis points, as expected. President Christine Lagarde stopped just short of declaring full victory over inflation. Her remarks were seen as dovish, leading many analysts to predict another rate cut at the next meeting.
GBPUSD traded in a 1.3005-1.3072 range with the top seen after stronger-than-expected retail sales data (actual 0.3% m/m, forecast -0.3%). However, weaker services inflation data earlier in the week and the outlook for two more rate cuts knocked prices back to 1.3045.
USDJPY surged to 150.29 in early Asian trading, driven by lower-than-expected inflation figures. Then fell to 149.77 after Japan’s Vice Finance Minister Atsushi Mimura’s comments. He warned of “slightly one-sided, sudden moves” in the currency market, signaling that authorities were closely monitoring for speculative activity.
AUDUSD is trending higher, moving from 0.6694 to 0.6719 on the back of improved risk sentiment following discussions of additional Chinese stimulus. The technical picture has turned bullish with the break above 0.6690, suggesting a potential test of resistance at 0.6750.
The Canadian data calendar is empty while US Housing Starts and Building Permits are ahead.
