– Global risk sentiment improves
– BoC Business Outlook Survey shows business confidence softened.
– US dollar attempting rebound from yesterday’s NY closing levels
USDCAD snapshot: open 1.3762-66, overnight range 1.3659-1.3770, close 1.3715, WTI $85.18, Gold $1651.92
The Canadian dollar rallied yesterday and overnight in Asia but fell sharply in Europe and early NY trading.
The Bank of Canada (BoC) Business Outlook Survey (BOS) painted a pessimistic picture. The BOS Indicator (a summary measure of the main Business Outlook Survey (BOS) questions that gauges overall business sentiment) fell 3.19 points for the third largest drop on record. Over 50% of the firms’ surveyed expect a recession in 2023.
BoC Governor Tiff Macklem is very concerned about inflation expectations becoming entrenched. He said as much last Friday. “Shorter run inflation expectations have risen with inflation and the longer inflation stays high, the greater is the risk that those higher short-run inflation expectations bleed into longer-run inflation expectations.
His concerns are justified. The Survey of Consumer Expectations noted, “Expectations for inflation one to two years ahead have continued to rise because consumers anticipate supply chain disruptions and elevated oil prices will persist. In contrast, expectations for inflation five years ahead have eased to near pre-pandemic levels.”
Many analysts reaffirmed their forecast for the BoC to hike rates 75 bps on October 26.
The Canadian dollar appeared to rally on the back of the BOS and rate hike forecast but the rally also coincided with a sharp rally on Wall Street. The Dow Jones Industrial Average climbed 551 points to close at 30,185.82.
The positive sentiment continued overnight. Asian equity indexes followed Wall Streets lead with the Nikkei 225 index gaining 1.42% and Australia’s ASX 200 rising 1.72%. European bourses are sharply higher as well, led by a 1.32% gain in the German Dax. Those gains are supported by the slide in the US 10-year yield to 4.0% from 4.04% overnight.
EURUSD traded in a 0.9814-0.9873 range with gains supported by news that German ZEW Economic sentiment rose 2.7%
GBPUSD traded choppily in a 1.1257-1.1409 range. The peak was seen following a Financial Times report saying that the Bank of England would delay the start of its bond selling program until the end of the month. The bottom was found after the BoE said the story contained “inaccuracies.”
NZDUSD was the best performing G-10 currency following a sharply higher than expect inflation reading. NZ CPI rose 7.2% y/y compared to the forecast for a 6.6% y/y increase. The result led some analysts to raise their rate hike forecast in November to 75 bps from 50 bps.
The US calendar has second-tier data which includes Industrial Production, Capacity Utilization and NAHB Housing Market.