- FOMC minutes keep focus on December rate hike
- Oil prices rise as US reported to be planning another Iran attack
- US dollar opens with gains because of renewed risk aversion sentiment
USDCAD open (6:00 am): 1.4264, overnight range 1.4244-1.4271, close 1.4259, WTI $91.96, Gold $4,122.90.
The Canadian dollar drifted sideways but weighed down by a fresh bout of global risk aversion after Trump's latest threats to strike Iran, In addition there is a renewed focus on the Fed's hawkish leanings following yesterday's FOMC minutes. Those minutes point to a strong chance of a 25 bp Fed hike in December
WTI rallied from $88.78 to $92.82 in early New York trading on reports that the US military has been told to be ready for possible strikes on Iran, perhaps even before the midterms.
Canada-US trade talks remain stuck in neutral, and Trump chimed in to say that Canada has been very difficult to deal with and that while he would like a deal, he is not satisfied.
The greenback walked into the New York session with a modest bid after minutes from the September 15-16 meeting showed every member backed the 25-basis-point hike. The bigger takeaway was the committee's view that one more increase will probably be warranted before the year is out.
CME rate futures traders are largely on board, pricing a 70% chance of a 25 bp move to 4.25% in December and next to nothing for October.
Governor Christopher Waller joined the hawkish chorus this morning. In prepared remarks delivered in Istanbul, he described 3% year-over-year core PCE as too high and said he expects more hikes, pointing out that 16 of the 18 dots penciled in at least one more increase this year..
Mediation between Washington and Tehran has hit a wall, a tanker came under fire from projectiles off Qatar with casualties reported, and Saudi-led forces and the Houthis are still swapping strikes. Brent and WTI both pushed higher, which has kept the dollar in demand.
Asian equity markets finished in the red. Australia's ASX 200 slipped 0.77%, Japan's Topix shed 1.51% and Hong Kong's Hang Seng dropped 1.43%.
As of 7:10 am, Germany's DAX is off 0.99%, France's CAC-40 is 0.85% lower and the UK's FTSE 100 has given up 0.42%. S&P 500 futures are down 0.58%, the 10-year Treasury yield stands at 5.353%, and the DXY sits at 102.41
EURUSD treaded water in a 1.1176-1.1213 band as it digested yesterday's decline, with a wider OAT-Bund spread and firmer crude both leaning on the single currency. Germany's August trade surplus came in at €19.5 billion, a touch above the €19 billion forecast but down from €21.6 billion in July.
GBPUSD played defence in a 1.3184-1.3223 range as climbing oil prices and fresh reports that Trump plans to resume strikes on Iran soured the risk mood. The hawkish FOMC minutes surprised nobody, but they did sterling no favours either. The RICS house price balance slid to -32, a shade weaker than the -30 forecast, while markets see roughly an 81% chance the Bank of England lifts rates by 25 bp in November.
USDJPY carved out a 157.58-158.31 range, finding a floor in Asia before grinding higher into the NY open as traders refocused on a hawkish Fed and rising oil. Speculation that the Bank of Japan will hike in December is taking some of the steam out of the rally.
AUDUSD leaned lower within a 0.6945-0.6969 range after Trump's latest Iran threats revived global risk aversion. Australian consumer inflation expectations jumped to 5.3% from 4.9%, which should embolden those calling for another RBA hike. Some analysts aren't convinced, arguing that soft consumer sentiment and spending mean any hike is unlikely to arrive this year.
The Canadian economic data calendar is empty. US weekly jobless claims are expected to be 200,000 compared to 197,000 last week.
