- Markets reacting to prospect of more Fed rate hikes.
- US ADP, Challenger, and weekly jobless data in focus.
- US dollar starts the day on a mixed note-JPY outperforms.
USDCAD snapshot: open 1.3288-92, overnight range 1.3282-1.3305, close 1.3283, WTI $72.12, Gold $1917.56.
The Canadian dollar consolidated yesterday’s losses in a narrow range overnight after risk sentiment soured due to the FOMC minutes. Its direction will be determined by the response to today’s US data.
No one doubted that the Fed adopted a hawkish outlook following the June 14 meeting, but traders were taken aback by the degree of hawkishness in the non-voting members. Most of them wanted to raise rates rather than pause.
NY Fed President John Williams said that pausing rate hikes was the right decision but admitted “we still have more work to do,” with future decisions being data dependent.
That means today's US employment reports and tomorrow's nonfarm payrolls data have more clout than usual to this data-dependent FOMC committee.
The ADP employment change report is expected to show a gain of 228,000 jobs in June, compared to the 278,000 increase in May.
Challenger reported that 80,089 jobs were cut in May, which was a 20% increase from April, and another increase will fuel speculation that the US economy is slowing. Weekly jobless claims are expected to increase by 6,000 to 245,000. Friday's NFP data is expected to show the US added 225,000 jobs compared to 339,000 in May.
EURUSD traded in a 1.0834-1.0889 range, with the bottom seen in Asia and the peak in NY trading. The rally was sparked by robust German factory orders data, which rose 6.4% m/m in May, well above the 0.4% decline in April. EURUSD technicals are bullish above 1.0830, looking for a break above 1.0900 to extend gains to the 1.1000 area.
GBPUSD traded with a bullish bias in a 1.2691-1.2772 range and is at the top of that band in NY. Part of the gains are due to EURGBP sales and because the market is still pricing in over 125 bps of rate hikes by the Bank of England. The GBPUSD technicals are bullish above 1.2640.
USDJPY dropped from 144.61 to 143.56, with safe-haven demand for yen overpowering the sharp rise in US Treasury yields. The prospect of higher US and European interest rates against a backdrop of rising geopolitical tensions, and the lingering fear of BoJ intervention fueled the sell-off.
AUDUSD chopped around in a 0.6635-0.6686 range and is trading at the top of the range in NY, with prices getting a bit of a boost on news that Australia's trade surplus widened to $11.791 million (previously 11.158). However, gains may be limited due to ongoing China growth issues.
USISM Services report is due.
