The Canadian dollar soared overnight. Surging oil prices, tame U.S. Federal Open Market Committee minutes, and "as-expected" U.S. inflation numbers sparked a shift to riskier assets and broad US dollar weakness.
The American Petroleum Institute (API) reported U.S. crude inventories rose 5.3 million barrels and that gasoline and distillate inventories declined sharply. Traders considered the news "a wash" and focused on the latest Energy Information Administration’s (EIA) forecast. The EIA expects U.S. crude oil output to decline by 260,000 barrels/day in 2021 even as global demand increases.
The Canadian dollar also got a boost as other commodity prices rallied. Gold (XAU/USD) popped through $1770.00 resistance, which had capped gains since the end of September, and climbed to $1,800.39 in New York. Gold prices got a lift from the slide in U.S. Treasury yields, and the weak U.S. dollar.
The Turkish lira was the worst performing currency overnight. President Erdogan fired three central bank policymakers for opposing the September 23 interest rate cut which took the overnight rate from 19% to 18%. Traders are not impressed by monetary policy decisions dictated by a man (Erdogan) with only a primary school education.
China’s Producer Price Index data raised some eyebrows. September PPI jumped to 10.7%, a new record, due to increased energy costs. Some analysts warn that the higher cost will soon be passed to consumers.
The FOMC minutes proved to be a non-event. A series of Fed policymakers following the September 22 meeting essentially confirmed that asset purchases will be tapered before the end of the year, which the FOMC statement and now the minutes suggested.
U.S. inflation was a tad hotter than expected, but supply chain disruptions may have distorted the results, so traders ignored the data.
EUR/USD broke above the downtrend line from September 13, rising from $1.1589 to $1.1624, due to the improved risk tone. However, EUR/USD is the worst performing G-10 major, and the dovish European Central Bank monetary policy outlook is limiting gains.
GBP/USD rallied from $1.3659 to $1.3733. Bank of England policymaker Silvana Tenreyro’s comments pushing back against a rate hike were ignored. She said the economy was weaker than the BoE forecast.
USD/JPY traded in a 1113.22-113.59 range with topside gains capped by the slide in U.S. Treasury yields.
AUD/USD and NZD/USD rallied on the back of improved risk sentiment. Australia’s employment data was mixed and ignored.
Today’s U.S. data includes PPI and weekly jobless claims.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
