– Powell supports cautious rate cut stance.
– US Retails Sales expected to slow.
– US dollar rally stalls.
USDCAD: open 1.4043, overnight range,1.4038-1.4072 close 1.4062, WTI $67.97, Gold, $2567.05
The Canadian dollar extended its losses again overnight, but it has managed to recover slightly in early NY trading. The bulk of the Canadian dollar losses can be attributed to incoming US President Donald Trump and his America First plans which include a 10% tariff bump across the board.
However, the Canadian dollar has problems of its own. The Financial Post reports that Canada’s record economic gap with the US is about to get wider. The article claims that Canada’s economy has been falling behind the United States and most major economies ever since the Trudeau government came to power.
The Canadian dollar’s more immediate problem is widening CAD/US interest rate differentials. The spread has widened to 115 bps in favour of the US and yesterday’s comments by Fed Chair Jerome Powell suggest they won’t narrow any time soon. Mr Powell said, “The economy is not sending any signals that we need to be in a hurry to lower rates.”
Traders are awaiting today’s US economic reports. US Retail Sales are expected to slow to 0.3% m/m form 0.4% m/m in September while Industrial Production and Capacity utilization data will be mixed. Canada releases Manufacturing and Wholesale Sales reports.
EURUSD stayed within a range of 1.0524-1.0581, reaching the upper end of the band during NY trading. The increase was partly attributed to profit-taking and unwinding of oversold positions, though the gains remained capped. Economic data from the euro area had little impact.
GBPUSD advanced from 1.2649 to 1.26697 despite disappointing economic data, including a modest 0.1% q/q rise in Q3 GDP versus the 0.2% forecast. Industrial and Manufacturing Production figures also fell short of expectations. Meanwhile, Bank of England Governor Andrew Bailey called for improved EU relations—perhaps hinting at “Brenter.”
USDJPY declined from 156.75 to 155.22 before rebounding to 155.55 in NY. Japan’s stronger-than-expected Q3 GDP (0.9% y/y vs. 0.7% forecast) drove the initial sell-off, which intensified after Finance Minister Kato’s verbal intervention prompted pre-weekend profit-taking.
AUDUSD edged up within a 0.6445-0.6480 range, supported by mixed Chinese economic data and a slight pullback in the US dollar.
