The Canadian dollar extended yesterday’s losses in a cautious overnight session. West Texas Intermediate (WTI) oil prices retreated from Tuesday’s $84.78/barrel high and fell to $83.14 before rebounding to $83.47 in early New York trading.
The Canadian dollar may have also been suffering from pre-Bank of Canada (BoC) monetary policy jitters. The steep rise in domestic inflation coupled with employment that has returned to pre-pandemic levels led to traders pricing in an interest rate hike in March or April 2022, which is about six months ahead of the BoC’s timing. That has helped drive USDCAD from $1.2888 on September 20 to $1.2290 a week ago.
Today, traders will find out if the Bank of Canada agrees with that view. If not, USD/CAD may rally and test $1.2500.
Wall Street price action flashed warning signals, and that dampened enthusiasm overnight. The major indexes made new record highs the dropped sharply but still managed to close in positive territory and at record highs.
Asia markets close flat to lower. The Hong Kong Hang Seng index lost 1.57% due to ongoing Chinese property developer woes.
European bourses are modestly lower ahead of today’s U.K. budget announcement and Thursday’s European Central Bank monetary policy meeting. S&P 500 and DJIA futures are trading around flat. Oil and gold prices fell as did US 10-year Treasury yields which are 1.598%.
EUR/USD drifted in a $1.1586-$1.1612 band, with sizeable option strikes in the $1.1600-10 area expiring at 10:00 am. Traders are cautious ahead of the ECB meeting where President Christine Lagarde is expected to stick to the dovish outlook and transitory inflation theme due to the risk of sharply lower Euro area growth from supply chain disruptions. EUR/USD has minor support at $1.1580.
GBP/USD broke the uptrend line from September 30 with the move below $1.3760 today with a drop below $1.3700 targeting $1.3650. Price action is limited ahead of today’s U.K. budget. France is reportedly planning "go-slow" customs inspection for goods in and out of the UK and hiking electricity rates to Jersey in response to Britain’s refusal to “sufficient” licenses for French fishing boats.
The Australian dollar outperformed after core-CPI spiked higher and raising speculation that the Reserve Bank of Australia would be forced to raise interest rates well ahead of schedule. AUD/USD jumped from $0.7494 to $0.7535 but gave back the gains in Europe and in early New York trading.
Today, U.S. Durable Goods Orders are to be released and expected to have dipped 1.1% in September
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
