– Risk sentiment turns positive after Powell’s remarks.
– Eurozone Services PMI shows signs the worst is over.
– US dollar opens with losses, AUD outperforms.
USDCAD: open 1.3499-03, overnight range 1.3499-1.3533, close 1.3527, WTI $85.38, Gold, $2293.49
The Canadian dollar found its footing and rallied yesterday and again overnight. The catalyst was a tame US ISM services report. Services grew slower than expected, and although the data is still in expansion territory, the 1.2 point drop to 51.4 is some evidence that the US economy is cooling.
The Canadian dollar rally got another bump following Fed Chair Jerome Powell’s speech at Stanford University, yesterday afternoon. Mr. Powell appeared to dismiss the recent higher-than-expected job and inflation data surprises. He admitted the job gains were at a faster pace than the Fed expected and even acknowledged the higher inflation readings. But the results didn’t matter. Mr. Powell said, “The recent data do not, however, materially change the overall picture, which continues to be one of solid growth, a strong but rebalancing labor market, and inflation moving down toward 2 percent on a sometimes bumpy path. On inflation, it is too soon to say whether the recent readings represent more than just a bump.”
A collective sigh of relief reverberated around the world. Wall Street stocks ticked higher, Treasury yields eased down, and the US dollar sank.
EURUSD rallied from 1.0764 yesterday to 1.0866 today. The single currency saw additional support following German and Eurozone Services PMI data. The S&P statement said, “The service sector in the eurozone is gradually finding its footing, with activity stabilizing in February and showing signs of moderate growth in March. This favorable trend is expected to persist, fueled by wage growth outpacing inflation, thus bolstering the purchasing power of households.”
GBPUSD rallied from 1.2644 to 1.2671 on the prospect of narrowing UK and US interest rates after Fed Chair Powell left the door open to three Fed rate cuts in 2024. The gains were limited after UK Services PMI slowed to 53.1 in March (February 53.4). The Services statement said, “The recovery in service sector output lost a little bit of momentum during March, and more so than suggested by the flash PMI results, but the overall picture remains reasonably positive.”
USDJPY drifted in a 151.54-151.79 band. Prices did not react to the drop in the US 10-year Treasury yield to 4.36% from 4.22% yesterday.
AUDUSD climbed from 0.6561 to 0.6614 in NY trading due to broad US dollar weakness.
Today’s US data includes Goods and Services Trade and weekly jobless claims, while Canada’s February Merchandise Trade balance is on tap.