– Canada Q2 GDP ahead
– Eurozone inflation higher than expected
– US dollar rallies across the board.
USDCAD Snapshot open 1.3116-20, overnight range 1.3066-1.3116, close 1.3093, WTI oil $89.22, Gold $1711.11
The Canadian dollar is sinking fast and its all due to external influences. The 8.5% plunge in West Texas Intermediate (WTI) oil prices didn’t help.
The Canadian dollar is in free-fall despite domestic data suggesting prices should be rising. Canada has a robust employment picture, an inflation-fighting superhero in the guise of Tiff Macklem, and consumers are still spending. The economy is expected to have grown 4.5%y/y in June.
USDCAD closed at 1.2795 on July 29 and it opened at 1.3118 today, a 3.23% gain. The rally is largely because of the “pivot” in the “Fed Pivot” view that was predominate at the beginning of the month. At the time, analysts were convinced that they knew when, and the level where fed funds would peak, and they also new when the first rate cut would occur.
That sentiment lifted Wall Street stocks, knocked the US 10-year Treasury lower, and undermined the US dollar. It was also wrong.
Fed Chair Jerome Powell and his colleagues on the FOMC were hawkish and committed to bringing US inflation down to its 2.0% target. Mr Powell made it perfectly August 26 in his Jackson Hole speech and various policymakers followed up with comments supporting the Fed Chair.
Traders scrambled to unwind positions and the timing was terrible as they were unwinding at the same time portfolio managers were rebalancing positions for month-end. That led to some large price swings.
Today marks the return of the ADP payrolls report which has been missing in action for two months because it was being overhauled. The ADP result will be based on its employment data while eschewing external models. The forecast for today’s number is 288,000 jobs.
EURUSD traded choppily in a 0.9972-1.0045 range. Eurozone inflation rosed 9.1% (8.9%in July), which convinced some analysts that the ECB will hike rates by 75 bps at the September 8 monetary policy meeting.
GBPUSD dropped from 1.1751 yesterday to 1.1615 in NY due to month-end demand for US dollars, which exacerbated the currency’s woes stemming from a leadership void, recession, and an energy crisis. A drop below 1.1610 would extend losses to 1.1500, a level last seen in 1985. If broken, 1.0400 is in the cards.
FX markets will be choppy until after the 11:00 am ET fixing.