The Canadian dollar retreated as FX markets turned cautious ahead of Wednesday’s Federal Open Market Committee meeting in the U.S. USD/CAD bottomed out yesterday afternoon at $1.2353 then climbed steadily until running out of steam at $1.2407 just as New York opened.
The gains were fueled by lower West Texas Intermediate (WTI) oil prices, and broad commodity currency weakness.
WTI fell from $84.81/barrel to $83.18/b on profit-taking. Losses were limited due to reports from the Organization of the Petroleum Exp[orting Countries that October production rose less than the 400,000-barrel increase projected. The shortfall was due to shortages in Nigeria and Libya.
The Reserve Bank of Australia (RBA) was the story overnight. It left interest rates unchanged at 0.10% and abandoned its yield curve control (YCC) strategy, which was expected. However, the outlook is far from hawkish. The RBA tweaked guidance from not raising rates until 2024 to the vague "conditions for a rate hike may take some time."
AUD/USD bears focused on comments that the board will remain patient due to ongoing concerns from the coronavirus and low inflation.
Governor Philip Lowe said, "it is entirely plausible that the first increase in the Cash Rate will not be before the maturity of the current target bond (Apr 2024), but it is also plausible that a hike could be appropriate in 2023." He added that "Markets have over-reacted to recent inflation data and that pricing for an early rate hike was extremely unlikely."
AUD/USD dropped from $0.7531 to $0.7457 on the news, which also knocked NZD/USD lower, while underpinning USD/CAD.
USD/JPY fell to 113.47 from 114.13 due to softer U.S. 10-year Treasury yields which fell to 1.547% from 1.60% yesterday. USD/JPY did not get any support from the minutes of the Bank of Japan's October 28 monetary policy meeting.
In Europe, EUR/USD traded erratically in a $1.1587-$1.1612 range. Eurozone October Manufacturing Purchasing Managers Index was modestly weaker than expected at 58.3 compared to September's 53.5 result but EUR/USD losses were short-lived. Traders are awaiting tomorrow's FOMC meeting and are distracted by sound-bites from the Climate change conference in Glasgow.
GBP/USD is steady in a $1.3627-$1.3666 range. Prices are supported by news that U.K. and E.U. officials have resumed discussions about fishing rights and delayed implementing threats.
Traders are awaiting Thursday’s Bank of England meeting.
Today’s U.S. data includes Institute for Supply Management Services PMI, ADP employment change, and factory orders.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
