- Fed Chair Powell speech Friday
- China cuts rates, underpins antipodean currencies
- US dollar stays bid to start the week
USDCAD Snapshot open 1.2981-85, overnight range 1.2973-1.3017, close 1.2993, WTI oil $90.18, Gold $1737.56
The Canadian dollar continues to consolidate last week’s losses due to broad based US dollar strength which has put downward pressure on commodity prices.
USDCAD gained ground steadily last week, rising from 1.2775 on Monday to 1.3006 Friday. The rally continued overnight with USDCAD reaching 1.3017 overnight, before dropping to 1.2973 in early NY trading. The price action mirrored S&P 500 futures prices, which are starting this week down 1.13%.
FX volatility is exacerbated by thin markets with many market participants on holiday until September. Those that remain are skittish.
Traders are reevaluating the view that the Fed will pause hiking interest rates by year-end and begin to pare them back as early as January 2023.
A number of Fed policymakers have been pushing back against that view recently which is why analysts are speculating that Fed Chair Jerome Powell will deliver a hawkish speech at the Jackson Hole Symposium on Friday.
The major Asian equity indexes closed with losses, except for China’s Shanghai Shenzhen 300 index. The CSI index squeezed out a 0.73% gain after the Peoples Bank of China (PboC) cut the 1-year and 5-year Lone Prime Rate (LPR) by 5 and 15 basis points respectively. China’s economy is struggling due to government lockdown policies to combat the coronavirus pandemic, soaring energy prices, and ongoing housing market issues.
EURUSD traded in a 0.9990-1.0046 range. Prices were steady in Asia and then dropped to the low in Europe. The drop was exacerbated by elevated energy crisis fears stemming from the Nordstrom pipeline closure and talk of EURUSD selling by Asian portfolio managers rebalancing positions.
GBPUSD traded in a 1.1784-1.1835 range due to broad US dollar strength. Citibank economists did not do the currency pair any favors when it predicted rising energy costs would drive UK inflation to 18.6% by January 2023. Even if Citibank’s prediction is correct, the CEO’s of the FTSE 100 companies won’t care as their pay increased by 39% in 2021.
AUDUSD traded with a bid tone, rising from 0.6870 in early trading in Asia to 0.6909 in Europe due to China’s PboC trimming interest rates.
USDJPY traded in a 136.71-137.43 range, rising in Asia and then falling in Europe in tandem with the 10-year US Treasury yield.
NZDUSD traded in a 0.6170-0.6206 range, supported by the Chinese rate cuts and getting an added boost from hawkish comments by RBNZ Deputy Governor Christian Hawkesby. He said the bank wanted policy rates “comfortably above neutral,” around 4.0-4.5%.
The Chicago Fed National Activity Index for July is due.
