- G-7 central bankers act to boost global liquidity.
- Safe-have demand crushes 10-year Treasury yield.
- US dollar rises against commodity currency bloc, sinks vs JPY.
USDCAD snapshot open 1.3718-22, overnight range 1.3688-1.3745, close 1.3735, WTI $64.69, Gold $1983.90
The Canadian dollar was sliced and diced in a narrow range overnight thanks to shifting risk sentiment around the Credit Suisse Bank debacle.
Credit Suisse closed Friday with a market cap of $8.0 billion and it doesn’t exist today. UBS bought the beleaguered bank for $3.2 billion dollars and wiped out $17 billion of Additional Tier-1 (AT-1) bonds in the process. These bonds were invented during the 2008 banking crisis to transfer banking risk from taxpayers to bondholders.
The move will continue to ripple through financial markets as it upset traditional debt ranking. Bonds traditionally rank ahead of equity in the case of a bankruptcy but apparently not AT-1 bonds.
In addition, there was a coordinated move by the European Central Banka, the Bank of England, Bank of Canada, Swiss National Bank and the Fed “to enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements.”
The news did not appease global financial markets.
Asian equity markets closed with steep losses led by a 2.65% plunge in Hong Kong’s Hang Seng index and a 1.42% drop in Japan’s Nikkei 225 index.
European bourses flitted around flat in European trading then eked out gains in early NY trading with the German Dax rising 0.50%. S&P 500 futures are slightly negative.
Traders remain risk averse as evidenced by the drop in the US 10-year Treasury yield to 3.29% from 3.52%, but that sentiment is slowly changing with the 10-year yield at 3.39% as of 8:00 am EDT.
Canadian dollar gains are being hampered by sharply lower oil prices. West Texas Intermediate was $77.10/b last Monday and fell steadily to $64.15/b in Europe overnight, a decline of 16.7%. It is the lowest level for WTI since December 2021. Option traders hedging their positions is being blamed for part of the decline while fears of a banking-crisis induced global slowdown also weighing on prices.
EURUSD traded in a 1.0632-1.0706 range band with traders still assessing the fall-out from the Credit Suisse failure.
GBPUSD bounced in a1.2168-1.2225 range and is sitting at 1.2204 in NY with traders awaiting this week’s BoE meeting.
USDJPY fell to 130.55 from 132.64 before rebounding to 131.09 due to US Treasury yield weakness and safe-haven demand for yen.
AUDUSD tracked broad risk sentiment while trading in a 0.6667-0.6741 range.
The US and Canadian data calendars are empty.
