– Bank of England rate hike-toss up between 50 or 75 bps
– Hawkish Fed sinks stocks
– US dollar soars as pivot dreams crushed
USDCAD snapshot open 1.3662-66, overnight range 1.3685-1.3774, close 1.3712, WTI $88.51, Gold $1624.16
The Canadian dollar soared then sewered in the aftermath of the FOMC statement and Fed Chair Jerome Powell’s press conference. It has not recovered.
USDCAD had a “wild and crazy” Wednesday afternoon. Prices dove from 1.3630 to 1.3549 after the FOMC statement was thought to be dovish. The dovish view went out the window during Mr Powell’s press conference.
He made it crystal clear that the path for US interest rates was higher. He said “it is very premature to be thinking about or talking about pausing our rate hikes. We have a ways to go. We need ongoing rate hikes to get to that level of sufficiently restrictive.”
He dodged a question about how where the terminal rate was saying, “On how high to raise the policy rate we are saying sufficiently restrictive in order to achieve our 2% inflation target over time. We think there is some ground to cover before we meet that test. We may ultimately move to higher levels than we thought at the time of the September meeting. That level is uncertain, and we will find it over time.”
The Canadian dollar is also suffering from a widening of Canadian and US interest rate differentials. The spread between the US 10-year Treasury yield and the Canadian 10-year bond yield is 81 bps in favour of the US.
The USDCAD technical picture turned bullish when prices broke above the 1.3660 area and are now targeting gains to 1.3810 then 1.3870.
Wall Street closed with steep losses led by a 3.36% plunge in the Nasdaq. Asian equity indexes followed Wall Street lower with Australia’s ASX 200 index losing 1.84%. The Hang Seng index dropped 3.08%.in a drop exacerbated by a 75 bp rate hike by the Hong Kong Monetary authority.
European equity indexes are deep in negative territory led by a 0.89% fall in the French CAC. S&P 500 futures are down 0.29%.
EURUSD is at the bottom of its 0.9732-0.9839 range. ECB President Christine Lagarde said Eurozone economic conditions are very different from those in the US and so the ECB cannot mimic Fed actions and they weighed on the currency pair.
GBPUSD dropped from 1.1421 to 1.1242 in early NY in the wake of the Fed action and comments. Analysts are torn between the BoE hiking rates 50 or 75 bps today and whatever decision is made, it is not expected to be unanimous.
USDJPY climbed to 148.42 from 147.12 due, supported by the Fed outlook and higher US Treasury yields.
AUDUSD dropped from 0.6371 in Asia to 0.6282 in NY while NZUSD traded in a 0.5757-0.5837 range. Both currencies suffered from the Fed outlook.
US weekly jobless claims are expected to rise 3,000 to 220,000. ISM Services PMI is expected to have dipped to 55.5 from 56.7 in October.