- Canadian dollar collateral damage in GBPUSD “flash crash”
- Risk aversion sours on US rate outlook and geopolitical tensions.
- US dollar soars, GBPUSD plummets 4.6% to 1971 low
USDCAD snapshot: open 1.3641-45, overnight range 1.3561-1.3680, close 1.3590, WTI $78.30, Gold $1642.28
The Canadian dollar got knocked for a loop overnight. It had plenty of company as a “flash-crash in GBPUSD boosted the US dollar across the board.
Asia tends to be the source of so-called “flash crashes” that roil many different financial markets partly because liquidity is usually poor for many non-Asia-centric instruments. Sudden, sharp price movements trigger stop losses, which further exacerbate moves.
GBPUSD was the victim overnight, with the currency pair falling from 1.0857 to 1.0355 in early Asian trading, a 4.6% drop. Prices gradually firmed, rising from the 1971 low to 1.0792 in NY trading.
GBPUSD sentiment was already negative, making it ripe for a bearish plunge. Traders were highly disappointed by the Bank of England’s timid response to rising global interest rates and UK inflation. The BoE monetary policy meeting ended Thursday with policymakers disagreeing on whether to hike rates 0.25%, 0.50%, or 0.75%. The majority voted for 0.50%, and traders sold the currency.
The UK inflation and growth outlooks are one of the worst in the G-10, which is weighing on prices.
The Canadian dollar was caught in the flash-crash crossfire. USDCAD rallied from 1.3561 to 1.3680 in NY trading today due to a mix of soft oil prices, and fears that the terminal (or peak) US interest rate will be higher than Canada's.
WTI oil prices slid to $77.25/b from %$79.94 due to broad US dollar strength weighing on all commodity prices.
EURUSD dropped to 0.9554 from 0.9708 due to the GBPUSD price action with the bearish sentiment exacerbated by Italian politics, the Russian-Ukraine war, and the energy crisis. Russia and the US traded veiled nuclear threats over the weekend. Moscow promised to use all the weapons at its disposal to defend its captured territories, and Washington warned of “catastrophic consequences” if they did.
The election of a right-wing, Euro-skeptic government in Italy is another concern for traders.
USDJPY climbed to 144.37 from 143.29, supported by the US 10-year Treasury yield at 3.777%. However, Traders were leery of the Bank of Japan after they reportedly spent 3.6 trillion yen ($24.8 billion) intervening in FX markets last Thursday.
The US and Canadian economic calendars do not have any top-tier data today.
