- FOMC minutes deemed dovish and US dollar drops
- US markets closed today for Thanksgiving
- US dollar opens lower, CAD underperforms
USDCAD snapshot open 1.3341-45, overnight range 1.3330-1.3360, close 1.3354, WTI $77.49, Gold $1756.42
The Canadian dollar rallied after the FOMC minutes were released but its gains lagged those of the other G-10 major currencies.
The FOMC minutes were dovish. Fed Chair Jerome Powell’s post-FOMC statement comments on November 2 were considered hawkish. He claimed investors were getting ahead of themselves and that thinking about a pause in rate hikes was “very premature.” The fall-out from the press conference was a stronger US dollar and a weaker stock market.
However, the FOMC minutes, released yesterday, suggest Mr Powell’s hawkish bias did not reflect the views of the Committee.
The minutes revealed that, “a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate. A slower pace in these circumstances would better allow the Committee to assess progress toward its goals of maximum employment and price stability.”
Financial markets reacted to that statement by buying stocks and selling US dollars as they are convinced that the Fed has taken 75 bp rate hikes off the table.
Maybe so, but the Fed still plans to raise rates above what was previously expected and historically, 50-bp rate increases were considered aggressive.
The market reaction to the minutes should be viewed with a jaundiced eye. Many US traders had already left to start their Thanksgiving festivities which sharply reduced liquidity and exacerbated price moves. The World Cup games in Qatar had a similar influence in European markets.
The Canadian dollar lagged gains by the antipodean and other G-10 currencies, partly because WTI oil prices came under renewed pressure. Reports that new covid cases in China rose over 31,400 encouraged selling due to fears of lower demand from China.
EURUSD rallied from 1.0383 to 1.0448 with prices getting an added lift from better-than-expected German ifo data.
GBPUSD traded in a 1.2053-1.202131 range due to broad US dollar weakness and comments by Bank of England officials suggesting higher interest rates are needed.
USDJPY tumbled to 138.06 from 139.59 on the back of the dovish FOMC minutes which narrowed JGB/US interest rate differentials. The US 10-year Treasury yield dropped to 3.689% today.
AUDUSD traded narrowly in a 0.6729-0.6767 band as rising Chinese covid cases limited gains.
There are no US or Canadian economic reports today.
