- Oil prices rise as with Iran and US tensions.
- Treasury yields remain soft, but inching up from session lows
- US dollar opened with losses across the board.
USDCAD open (6:00 am): 1.4058, overnight range 1.4053-1.4112 close 1.4112, WTI $100.56, Gold $4,112.64.
The Canadian dollar is grinding higher from growing bets that the Bank of Canada will tighten on October 28.
Governor Tiff Macklem stoked those expectations over the weekend, saying “The question we’re going to be asking ourselves is inflation likely to come back down towards our target on its own, or are we going to have to raise interest rates to influence the path.”
Then yesterday, CPI added fuel to the fire, with headline inflation edging up to 3.1% y/y from 3.0% in August, a touch below the 3.2% forecast. That was enough for Scotiabank to pencil in a 25 bp hike this month, although economists at most of the other big banks aren’t buying it.
WTI climbed from 98.07 to 100.92 overnight. The catalyst was Iran claiming it brought down a US MQ-9 Predator drone over the Strait of Hormuz. For good measure, the Houthis said they had struck Saudi Aramco installations at Yanbu and the Shaybah field.
A month ago, the market was so sure of an October rate hike that it put the odds at roughly 70%. That conviction has since evaporated, with the probability now down to just 17%, though a December increase is still regarded as all but a done deal. The 10-year Treasury yield is sitting at 5.129%, still close to multi-year peaks and a level that conservative investors continue to find appealing.
Asian equities finished with Australia’s ASX 200 down 0.32%, Japan’s Topix losing 1.43%,and Hong Kong’s Hang Seng falling 1.32%.
As of 7:20 am in Europe, the CAC 40 is down 0.93%, the German Dax is down 0.88% and the UK FTSE 100 has dropped 0.63%. S&P 500 futures are down 0.16%, The US dollar index is 101.85 and the 10-year Treasury yield is 5.129%.
EURUSD kept to a narrow 1.1205-1.1235 band and is idling at 1.1214, with a softer dollar acting as a floor and the political turmoil in Paris acting as a ceiling. Meanwhile, German producer prices jumped 1.9% m/m in September, more than double the 0.8% forecast.
GBPUSD bounced within a 1.3299-1.3359 range after UK unemployment dropped to 4.7% from 4.9% and employment grew by 102,000, up from 67,000 last time. Traders still expect that the BoE will raise rates in November.
USDJPY slipped toward the bottom of its 158.04-158.60 range after Japan’s 20-year JGB auction attracted record demand. Reports that the BoJ will lift its inflation forecast for next fiscal year on the back of higher oil prices added to the pressure, as did the fading prospect of a Fed hike.
AUDUSD edged up inside a 0.6970-0.6999 band, carried along by the market’s sour mood toward the US dollar. Hawkish remarks from RBA officials have given the Aussie a modest cushion, offsetting the disappointing jobs numbers released recently.
On today’s calendar, the US releases building permits and pending home sales.
