- Fed hikes 75 bps and US stocks rally
- US Q2 GDP (preliminary) expected to rise 0.4% y/y
- US dollar opens lower following FOMC
USDCAD Snapshot open 1.2810-14, overnight range 1.2797-1.2835, close 1.2824, WTI oil $99.13, Gold $1741.39
The Canadian dollar surfed a wave of broad U.S. dollar weakness following yesterday's Federal Open Market Committee (FOMC) policy meeting.
The FOMC delivered as expected. They raised the fed funds rate by 0.75%, taking the rate to 2.25-2.50%, which is also considered the neutral rate. The neutral rate is defined as the level where the theoretical federal funds rate is neither accommodative nor restrictive.
More importantly, the Fed seemed to scrap "forward guidance." They must have realized their recent inflation forecasts and economic outlooks were far removed from reality, that telling markets how things will evolve in the coming months was an exercise in futility.
Fed Chair Powell stressed that bringing inflation down to the 2.0% target was the focus and he would tolerate restrictive monetary policy until that goal was achieved. He said that future rate moves would be data dependent which means traders will be extra-vigilant around the next two employment and inflation reports, which will be released ahead of the September FOMC meeting.
Wall Street found the silver-lining in the rate hike cloud and determined that the Fed rate hikes may be less aggressive after Powell said in his press conference, "it may be appropriate to slow increases at some point."
That statement is vague and wishy-washy, but Wall Street jumped all over it. The Nasdaq closed with a 4.06% gain while the S&P 500 rose 2.62%.
Asian equity traders were more cautious and closed with small gains, while European bourses are hovering around unchanged.
The Canadian dollar is getting some support from a rebound in global commodity prices in addition to oil. West Texas Intermediate (WTI) rebounded from a low of $94.30/barrel to $99.80 in N.Y. today. Traders are encouraged by steady demand in the face of supply questions.
The Energy Information Administration reported "U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 4.5 million barrels from the previous week."
Markets are looking ahead to today's U.S. Q2 GDP data, which is expected to show the economy grew at a tepid 0.4% pace. A negative result would lead to technical recession chatter and may sour risk sentiment.
The U.S. dollar sank and soared in the aftermath of the FOMC meeting. EURUSD rallied from 1.0110 ahead of the FOMC to 1.0230 in Asia, then erased the entire move into early N.Y. trading.
GBPUSD outperformed EURUSD due to a euro-area energy crisis and broad EURGBP selling pressures.
AUDUSD and NZDUSD have given back most of their post-FOMC gains ahead of today's U.S. Q2 GDP data.
