- Soaring US inflation sinks global equity markets
- Canadian dollar swamped by negative risk sentiment, globally
- US dollar surges ahead of Fed meeting, Tuesday
USDCAD Snapshot: open 1.2858-62, overnight range 1.2776-1.2866, close 1.2787, WTI open $118.63, Gold open $1,854.71
The Canadian dollar started this week on the defensive. The currency added to Friday’s losses in the wake of widespread US dollar demand, with global equity and bond markets in free fall and commodity prices retreating.
Friday’s US CPI report showed inflation was running far hotter than expected. Even worse, the gains were not confined to just one or two items, but most of the key components were higher. The Fed’s preferred gauge, Core-inflation (ex-food and energy) rose 0.6% m/m. The chances that inflation begins to ease anytime soon are slim, especially with crude oil prices at extremely elevated levels.
The market fully expects the Fed to raise rates by 0.50% on Tuesday, mainly because Fed Chair Powell pre-announced the hike. However, CPI data raised the odds of a 0.75% Fed rate hike to 50%. Such a move is unlikely as that would mean Mr Powell is admitting his inflation outlook is totally wrong.
The week started with traders digesting a rash of bad news.
China is suffering from renewed covid outbreaks in Beijing and Shanghai resulting in the reimposition of some business closures.
China’s Defense Minister Wei Fenghe reminded world governments that Taiwan is first and foremost China’s Taiwan. He said those that pursue Taiwan Independence will come to no good. He added “The annexation of Taiwan is a historic mission which its military will be willing to fight for. Mr Fenghe obviously skipped History 101 or he would know that China’s Qing Empire ceded Taiwan to Japan on April 17, 1895. China has zero claims on the island.
Europeans are dealing with fears Russian President Putin plans to reclaim the former USSR territories.
Asia equity markets closed with steep losses, led by a 3.0% drop in Japan’s Nikkei 225. European bourses followed suit with the German DAX index falling 2.225 while S&P 500 futures dropped 2.50%. The equity losses were fueled by a spike in the US 10-year Treasury yield which jumped from 3.037% to 3.271% in NY.
EURUSD extended Friday’s post-US CPI losses and dropped from 1.0520 to 1.0457 before inching higher in NY trading. French politics weighed on prices as President Macron’s is at risk of losing his parliamentary majority.
GBPUSD fell from its Asia peak of 1.2320 to 1.2201 following another round of weak UK data, exacerbating Friday’s plunge following the US inflation print.
USDJPY soared from 134.15 to 135.19, on the back of rising Treasury yields. Australia was closed for a holiday but that didn’t stop AUDUSD falling from 0.7045 to 0.6958.
The US and Canadian data calendars are empty.
