- Oil prices retreat from recent peak but remain elevated..
- Fed expected to raise rates by 25 bps to 4.0%
- US dollar is trading steady but firm.
USDCAD open: 1.3930, overnight range 1.3914-1.3939, close 1.3920, WTI 104.19, Gold 4,338.70.
The Canadian traded quietly overnight, with traders showing little inclination to take positions ahead of this afternoon’s FOMC decision.
The Canada Investment Summit appears to have delivered some of the substance that had been promised. Carney announced a permanent tax measure allowing businesses to immediately deduct the full cost of a broad range of new assets, while the government also adjusted its approach to the oil and gas sector in an effort to encourage investment in new infrastructure.
Reuters reported that European Commission President Ursula von der Leyen said the EU was considering Canada for “associate member” status. The Financial Times subsequently reported that the EU was not pursuing such an arrangement, apparently because of concerns about how Trump might react.
The Summit may represents a move in the right direction, but the results will not have anyimpact on the Loonie in the near term.
WTI oil traded in a $103.68-$105.64 range and is sitting at the session low in New York. Reports that Saudi Arabia plans to move additional crude through Oman helped reduce some of the concern surrounding potential supply disruptions.
The Fed is widely expected to deliver a 25 bp rate hike to 4.00% today. CME pricing now assigns a 92.5% probability to the move, up sharply from 61.2% a week ago and just 33.1% a month earlier. Trump responded to the 162,000 increase in nonfarm payrolls by demanding lower rates, apparently unconcerned that stronger employment is hardly the classic argument for monetary easing.
He also installed Kevin Warsh as Fed Chair expecting a chairman more receptive to his views. The market therefore expects Warsh to deliver the hike while using his press conference to keep the president reasonably happy. That balancing act could produce a particularly messy post-FOMC session. The latest FOMC economic projections will also be released.
The US dollar had a subdued overnight session before opening in New York with modest gains. Firmer crude oil prices and a US Treasury 5.0% yield provided support.
Asian equities finished higher, with Japan’s Topix gaining 0.61%, Hong Kong’s Hang Seng adding 0.19% and Australia’s ASX 200 rising 0.28%.
As of 7:00 am, European equities are also higher, led by the UK FTSE 100, up 0.62%. France’s CAC 40 has gained 0.49%, while Germany’s DAX is 0.32% higher. S&P 500 futures are up 0.21%, the 10-year Treasury yield is 4.987%, DXY is 99.68 and gold is trading at $4,350.80.
EURUSD is sitting near the bottom of its overnight range in early New York trading, weighed down by higher crude prices and expectations of a 25 bp Fed hike. Eurozone industrial production fell 0.1%, unchanged from June.
GBPUSD is trading near the lower end of its overnight range. UK inflation was firmer, although not sufficiently strong to alter expectations that the Bank of England will leave rates unchanged at tomorrow’s meeting. Headline CPI increased 3.1% y/y in July, matching expectations and edging up from June. Producer price data painted a somewhat hotter picture, with input prices accelerating to 6.1% from 5.8% and output prices rising to 3.7% from 3.3%. The producer data suggest underlying price pressures may be proving more persistent than the headline CPI number indicates.
USDJPY moved higher as crude prices climbed, while disappointing Japanese growth data provided little support for the yen. Reuters reported that Japan’s economy grew at an annualised 1.1% rate in Q2, well below the 2.0% median forecast. Japan also posted a USD 7.13 billion trade deficit in August, largely reflecting a sharp increase in oil import costs.
AUDUSD remained trapped in a narrow overnight range as broad US dollar strength and a lack of conviction ahead of today’s FOMC decision limited trading interest. Rising US Treasury yields added another layer of pressure to the Australian dollar.USDMXN traded in a 17.1084-17.1613 range, but the recent gains from the September 4 low appear to be just a correction while prices remain below 17.3050. Mexican markets are closed today for Independence Day celebrations.
