The Canadian dollar outperformed against its G-10 counterparts since Thursday’s open and is the best performing currency in the past 24 hours. A surge in West Texas Intermediate (WTI) oil prices from $75.30 on Thursday to $79.63 overnight fueled the Loonies gain.
A confluence of events is underpinning WTI prices. The lingering impact on supply from US storms combined with reports China told energy companies to "secure winter supplies at all costs," natural gas shortages in Europe, and bullish price forecasts have combined to lift prices to levels last seen in November 2014.
Canada’s September employment report is expected to show 60,000 new jobs adding to the 415,000 gain over the past three months. A larger-than-expected increase will support the Canadian dollar but its overall direction will be determined by the U.S. nonfarm payrolls (NFP) report.
NFP is forecast to rise 500,000, along with an increase in average hourly earnings, and a dip in the unemployment rate to 5.1%.
If so, analysts suggest it just about guarantees the Fed will begin tapering asset purchases in November. Those expectations have boosted the U.S. dollar, Treasury yields, and undermined equities.
Overnight, FX markets took the news that the U.S. government extended the debt ceiling until December 3, in stride. Equity traders, not so much. US stocks sold off aggressively as traders feared debt ceiling negotiations would fail, then rallied when reports of a deal surfaced. An agreement was announced last night but instead of rejoicing equity traders turned their focus to the jump in US 10-year yields and the implication of today’s U.S. employment data on Fed tapering plans.
European bourses are trading mixed to flat, while U.S. equity futures are almost unchanged in early New York trading. Oil and gold prices are modestly higher, and U.S. 10-year Treasury yield has dipped from its overnight peak of 1.60% to 1.586%.
China returned from its seven-day Golden Week holiday and traders bought stocks. The benchmark Shanghai Shenzhen CS! 300 index rose 1.31%, supported by better than expected Caixin Services Purchasing Managers Index data for September (actual 53.4, forecast, 50.7, previous 46.7). The results were due to a drop in COVID-19 cases that boost confidence.
EUR/USD and GBP/USD were range bound while USD/JPY rallied due to higher 10-year Treasury yields.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
