- FOMC minutes underpin US dollar
- Markets cautious ahead of Friday’s nonfarm payrolls data
- US dollar opens on mixed note following Wednesday’s losses
USDCAD snapshot open 1.3506-10, overnight range 1.3472-1.3525, close 1.3478, WTI $74.60, Gold $1849.19
The Canadian dollar consolidated yesterday’s gains in a quiet overnight session.
Yesterday’s release of the FOMC minutes from December 14 reinforced the hawkish Fed outlook which provided the US dollar with a bit of support.
The FOMC minutes put to rest any notion of a Fed pivot in 2023. The minutes explicitly stated that” No participants anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023.”
The FOMC acknowledged that inflation was unacceptably high and needed a sustained period of below-trend real GDP growth to reduce inflationary pressures.
The FOMC view contrasts with that of the Bank of Canada. BoC Governor Tiff Macklem suggested that Canadian rate rates were close to the peak level for this hiking cycle and many analysts believe that peak may be seen at the January 25 monetary policy meeting where a 25-bps rate increase is expected.
Canadian dollar traders appear to be ignoring soft oil prices and the risk of widening CAD/US interest rate differentials. Instead, they are reacting to improving global risk sentiment, which is underpinned by China reopening its economy.
Chinese authorities announced a plan to gradually reopen its border with Hong Kong beginning January 8, which sparked a rally in Chinese stock markets. That rally helped Asian equity indexes close in positive territory.
Traders are ignoring WHO and President Biden’s concerns that Beijing is deliberately understanding the impact of its latest Covid-9 outbreak.
EURUSD is rangebound in a 1.0591-1.0631 range. The hawkish FOMC minutes helped to cap gains while a steep drop in European energy prices is providing some support. The German trade surplus widened in November but didn’t impact FX as it was due to a drop in overall trade. Traders are awaiting today’s US ADP Employment change, and weekly jobless claims reports.
GBPUSD traded in a 1.2002-1.2077 range. Prime Minister Rishi Sunak is channeling his inner Maggie Thatcher as he prepares to take on unions in six key areas. The pending legislation is supposedly giving employers the right to sue unions and fire employees. The intraday GBPUSD technicals are bearish below 1.2070.
USDJPY traded erratically in a 131.70-132.89 range with prices supported by the FOMC minutes and a steady US 10-year Treasury yield at 3.71%. Prime Minister Kishida is telling companies to hike wages to prevent stagflation.
AUDUSD consolidated yesterday’s gains in a 0.6802-0.6844 range with prices supported by China’s reopening plans and by earlier news that China will resume buying Australian coal.
Today’s US data includes ADP employment report, weekly jobless claims, and Goods Trade Balance. Canada’s Trade balance data is also on tap.
