– Equity rally was short-lived-global indices posting losses.
– BoC minutes show policymakers fear slowing growth.
– US dollar trading quietly on a mixed note.
USDCAD: open 1.3746, overnight range 1.3727-1.3762, close 1.3760, WTI $74.83, Gold, $2396.57
The Canadian dollar rally stalled yesterday, and prices drifted inside yesterday’s range, in an uneventful overnight session.
The Summary of Deliberations from the Bank of Canada’s July 24 monetary policy meeting revealed policymakers were concerned about the impact of upcoming mortgage renewals and rising population on economic growth. They are now concerned about inflation dropping below target due to rising unemployment due to high immigration. In fact they blamed subdued Q2 GDP growth on population growth and said it it was a reason why per-person GDP is contracting.
That is not good news in light of rising recession risks in the USA. Goldman Sachs and JPMorgan have raised the odds of a recession to 25 and 35% respectively due to fears of a sharply weakening labour market.
The reaction to Friday’s weaker than expected jobs data has put a spotlight on today’s weekly jobless claims number. If claims are higher than the 40,000 expected, we could see a repeat of the Friday/Monday market meltdowns, although not to the same extent.
EURUSD closed at 1.0922 yesterday, trading sideways in a 1.0920-1.0945 range overnight. Traders remained sidelined due to a lack of actionable Eurozone economic data and caution ahead of the US weekly jobless claims numbers. EURUSD support at 1.0900 should contain downside moves.
GBPUSD traded in a 1.2665-1.2714 range. Prices were steady until just before NY opened when they dropped to the session low before rebounding to 1.2685. There was no specific catalyst for the drop except for “more sellers than buyers.” GBPUSD is in a mild uptrend while prices remain above 1.2650.
USDJPY held onto its title of “most volatile G-10 currency,” bouncing in a 145.43-146.88 range. The volatility stems from last week’s BoJ rate hike and the suggestion of more hikes to come, triggering a violent re-pricing of JPY and a freefall in Japanese stocks. Yesterday, BoJ Deputy Governor Shinichi Uchida appeared to reverse the rate hike outlook, muddying the interest rate outlook.
AUDUSD had a good session, rising from 0.6507 to 0.6565 and is near the top of that band in early NY trading. The rally was sparked by tough talk from RBA Governor Michele Bullock, who said she wouldn’t hesitate to hike rates if inflation remains persistently high. Westpac Bank is now forecasting a rate cut in February, although the market has fully priced a rate cut in December.
