– Markets suffering from new wave of risk aversion.
– Weak Euro area and UK data boost greenback.
– US dollar opens with gains across the board.
USDCAD: open 1.3988, overnight range,1.3958-1.4021, close 1.3975, WTI $70.16, Gold, $2707.78
The Canadian dollar rally that occurred yesterday ended abruptly. A mix of hawkish sounding Fed-speak, stronger than expected weekly jobless claims, rising geopolitical tensions combined to encourage safe-haven buying of US dollars. Overnight a rash of weak Asian, Eurozone and UK PMI reports underscored the sharp divide between the US economy and the rest of the world.
Analysts and traders are revising their outlooks for Bank of Canada monetary policy. The recent firmer than forecast inflation reading combined with the fiscal stimulus announcements by the government greatly reduced the risk of another 50 bp rate cut.
The Trudeau government is issuing every person earning less than $150,000/year a $250 cheque while simultaneously removing the tax on beer and wine.
Canadian Retail Sales are expected at 0.4% m/m for September, unchanged from August while Retail Sales ex-autos rise 0.5% compared to a 0.7% drop in August. US Michigan Consumer Sentiment is forecast at 73.7 (previous 73) and a higher result will underpin the US dollar.
Oil prices got a boost from rising geopolitical tensions thanks to Russian President Putin’s latest comments. The elevated risk of supply disruptions have lifted WTI from 69.29 to 70.75 overnight. However, further gains may be hard to come by if reports that Saudi Arabia is contemplating raising production in December are accurate. The increased supply at a time when China’s slumping economy faces further headwinds from new tariffs risks a steep drop in crude prices.
EURUSD traded in a 1.0333-1.0499 range because of soft German data and weak Eurozone PMI reports. According to S&P Global, the situation is dire: the manufacturing sector continues to deteriorate, and the services sector is now faltering after a brief period of slight growth.
GBPUSD took a significant hit, falling from 1.2595 to 1.2487, following disappointing PMI figures after soft Retail Sales and PMI data. Retail sales contracted by 0.7% in October, and September’s results were revised down to a modest 0.1% growth. The contraction in PMIs further deepened concerns.
USDJPY whipsawed in a 153.97-154.96 band. Japanese core inflation came in slightly higher than expected at 2.3% (compared to a forecast of 2.2%), while the Manufacturing PMI slipped to 49 from 49.5. The mixed data offered little clarity on the Bank of Japan’s potential interest rate decisions in December.
AUDUSD declined from 0.6522 to 0.6471 but managed a partial recovery to 0.6502 in New York trading. The sell-off was driven by broad US dollar strength and a sharp drop in Chinese equity markets, with the Hang Seng Index losing 1.89%.
