– Fed expected to leave rates unchanged.
– Canada GDP growth contrasts sharply with US.
– US dollar consolidating Tuesday’s gains ahead of FOMC meeting.
USDCAD: open 1.3885-89, overnight range 1.3864-1.3890, close 1.3877, WTI $82.17, Gold, $1983.32
The Canadian dollar remains under pressure along with the rest of the major G-10 currencies, with the Federal Open Market Committee (FOMC) in focus today.
Fed Chair Jerome Powell and company are universally expected to announce that the overnight rate will be unchanged at 5.50%. The devil will be in the details. The Fed will ensure that just because they didn’t hike rates, it does not mean that the tightening cycle is over or that further rate increases are not on the agenda. They will point to robust economic growth, strong employment, and sticky inflation to suggest the risk of another rate hike cannot be ignored.
Traders are already primed for such an outcome and, instead, are looking closely at the US Treasury quarterly refunding announcement expected at 8:30 am. The government is expected to increase the size of its bond auctions for the coming quarter by $11.0 billion, to $114.00 billion. Traders fear the news could send the 10-year Treasury yield soaring in a similar move to what occurred following the July announcement.
The Canadian dollar is also suffering due to divergent economic growth trajectories between Canada and the US. Yesterday’s August GDP data showed Canada to be on the brink of a “technical recession.” The economy did not grow in August or July, and recent data suggest September’s results will be similar. Canada’s lack of growth contrasts sharply with the US, which grew at 4.9%, the fastest pace in almost two years.
Meanwhile, hopes that a rebounding Chinese economy would lift the global growth outlook took a hit after the Caixin Manufacturing PMI data showed China’s economy contracted in October.
EURUSD chopped between 1.0545 and 1.0581, due to caution while awaiting the Federal Reserve’s upcoming decision.
GBPUSD action paralleled that of EURUSD, inside a 1.2123-1.2162 band. UK Manufacturing PMI disappointed, dropping to 44.8 from the 45.2 in September, which limited gains.
USDJPY remained bid in a 151.14-151.71 range, with the recent gains a sign of traders daring officials to intervene.
AUDUSD got a small boost and rose from 0.6318 to 0.6348, thanks to a slightly higher October Manufacturing PMI report (actual 48.2 vs. September’s 48.0).
Key economic data from the United States slated for release today includes the ADP Employment change, ISM Manufacturing PMI, Construction Spending, and JOLTS job turnovers