– Markets trading cautiously after Friday’s volatility.
– Oil prices rise on fresh supply concerns
– US dollar slightly extends Friday’s gains, except against majors.
USDCAD: open 1.3590, overnight range 1.3568-1.3599, close 1.3576, WTI $76.11, Gold, $2657.18
The Canadian dollar plunged on the heels of a stronger than expected US nonfarm payrolls report on Friday then consolidated the losses overnight.
US nonfarm payrolls were far stronger then expected, rising by 254,000 jobs compared to the forecast for just a 140,000 increase. In addition the unemployment rate fell to 4.1% from 4.2%. The details suggested that the American economy was far stronger than previously expected and that took large Fed rate cuts off the table.
The Canadian dollar slide gathered momentum because the economic growth divergences between Canada and the US mean the Bank of Canada needs to slash domestic rates far more aggressively than the Fed.
Oil prices rose to 76.47 from 73.63, underpinned by news that Ukraine attacked a Russian oil terminal in the Crimea. Traders are already worried about escalating middle east tensions disrupting supply.
EURUSD remained under pressure, trading within a tight 1.0955-1.0979 range after Friday’s losses. The fall below the 1.1000 level shifted the technical outlook to bearish, with 1.1000 now acting as resistance. The pair is weighed down by reduced expectations of Fed rate cuts, while the European Central Bank’s policy stance remains steady. EURUSD is expected to find support around the 1.0950 mark, particularly as $3.1 billion worth of options expire later today. In economic data, German factory orders dropped by 5.8% m/m in August, worse than the forecast of -2%, while Eurozone retail sales increased by 2.0% m/m as anticipated.
GBPUSD struggled within the 1.3062-1.3135 range, unable to recover from the dovish tone of Bank of England Governor Andrew Bailey’s comments last week. Friday’s US employment report added to the pressure, pushing prices lower. The breach of 1.3210 broke the September uptrend, and further declines are targeting the 1.3000 level, with a potential move toward 1.2880.
USDJPY surged from 145.93 to 149.00 on Friday, bolstered by the strong US jobs report and a jump in 10-year Treasury yields. The pair then consolidated between 148.06 and 149.14 overnight. Support for USDJPY was further strengthened by recent remarks from Japan’s Prime Minister Shigeru Ishiba, who indicated that the economy is not ready for further rate hikes. The US nonfarm payrolls data fueled additional upside as it dashed hopes for another Fed rate cut in November, following September’s 50 bp cut.
AUDUSD traded lower, moving within a 0.6777-0.6811 range after the post-NFP selloff. Market activity was subdued due to the Labour Day holiday in Australia. However, the TD-MI inflation gauge showed an uptick, rising to 2.6% y/y from 2.5% in September.
There are no notable Canadian or US economic reports today.