- Robust US PMI data drives 10-year US Treasury yields to 5.15%
- Oil prices consolidating recent losses in hopes of a Iran-US truce.
- US dollar continues to rally
USDCAD open: 1.4109, overnight range 1.4093-1.4120, close 1.4104, WTI $93.72, Gold $4,255.58
The Canadian dollar sank as US Treasury yields soared. The combination of yesterday’s unexpectedly strong US S&P PMI reading and increasingly hawkish comments from Fed officials has materially changed the rate outlook, with markets now assigning a 75% probability to an October Fed hike.
WTI spent the overnight session bouncing between $91.43 and $93.68 with traders hoping for a truce or ceasefire announcement from Washington. It may not happen. An IRGC adviser to Iran’s Supreme Leader has also warned that another US attack could widen the conflict into the Indian Ocean.
Canadian retail sales, excluding autos, are forecast to have slipped 0.5% m/m in July. But July already feels like ancient history. With Trump’s latest tariff moves potentially changing the economic landscape, the report is unlikely to tell us much about where Canadian consumers or the economy are headed now.
Today’s US data which includes weekly jobless claims is likely to be ignored with markets focused on today’s Trump/Xi Jinping talks.
Yesterday, US September's S&P Global data handily beat all expectations and raised the odds for another Fed rate hike in October to over 75%. The news sent the US dollar sharply higher while knocking equities lower.
Trump pulled out every stop welcoming Chinese President Xi Jinping, unrolling the red carpet and waiting on the tarmac for his arrival. The theatre paid off and Trump landed a trade truce extension, with Bessent confirming the current agreement now runs through January.
Asian equities closed lower across the board, with Australia's ASX 200 leading the slide at 0.72%. Japan's Topix slipped 0.39% and Hong Kong's Hang Seng eased 0.29%.
As of 7:30 am, the UK's FTSE 100 is close to unchanged while the French CAC 40 and Germany's Dax each shed 0.25%. S&P 500 futures are down 0.53%, the 10-year Treasury yield backed off its 5.15% peak to trade at 5.122%, and the DXY is 101.23.
EURUSD tumbled through a 1.1362-1.1399 range overnight. The selloff is the result of the overnight spike in the 10-year Treasury yield to 5.15%, yesterday's blowout US PMI number and a chorus of hawkish Fed officials. Even better-than-expected German Ifo data couldn't slow the bleeding.
GBPUSD sank into a 1.3215-1.3256 range as broad dollar demand, the jump in Treasury yields, firmer Fed hike odds and lingering gloom from yesterday's UK PMI data all piled on sterling at once. BoE policymaker Clare Lombardelli's warning that rates are likely to rise barely registered.
USDJPY climbed into a 157.80-158.80 band e as traders, back from a three-day holiday, bought dollars against the yen on the back of rising Treasury yields and firmer Fed hike odds. The pair is supported by the BoJ's recent dovish rate hike.
AUDUSD dropped to 0.7018 from 0.7052 range on broad US dollar strength and mixed Aussie employment data. The unemployment rate crept up to 4.6% in August against forecasts of 4.5% (July was also 4.5%). The economy added 39,500 jobs, but they were all part time.
Today’s US weekly jobless claims and new home sales data will be overshadowed by the Trump/Xi Jinping meeting and more Fed speakers.
