- Fed leaves rates unchanged, BoC hikes
- US GDP and PCE price index numbers ahead.
- US dollar opens on the defensive after Fed deemed dovish
USDCAD open (6:00 am): 1.3995, overnight range 1.3970-1.4002, close 1.3996, WTI $101.33, Gold $4,029.61.
The Canadian dollar largely ignored the Bank of Canada’s 25 bp rate hike to 2.50%, because it was expected, if not unwarranted. It rallied in earnest after the Fed, left rates on hold, as expected but delivered a somewhat dovish statement which was not.
WTI drifted through a $100.60-$102.30 band with a mild downward bias. Crude lost some of its fizz on reports that the go-betweens in the US-Iran standoff are working overtime to broker a deal, because of fears that Washington is planning something big once the midterms are behind it. VP Vance has reportedly put in a call to Mohsen Rezaei, secretary of Iran’s Supreme National Security Council.
The Fed left the funds rate at 3.75%-4.00%, with Hammack and Cook voting for another quarter point in a 10-2 split. Nobody should be surprised. Hiking a week before Tuesday’s midterms would have brought down the wrath of Trump, and the FOMC has no appetite for that kind of trouble.
Policymakers still describe inflation as elevated and left the door open to further tightening, but the press conference held no surprises beyond what the market had already priced, and short-dated yields slipped. The Fed now characterizes growth as “strong” rather than “solid,” which puts today’s US economic data under a spotlight.
Economists expect Q3 GDP at 3.5% q/q (previously 6.1 and PCE report is expected to rise 0.5% m/m and 3.6% y/y, up from 0.3% and 3.4%. Core PCE is forecast at 0.3% m/m and 3.1% y/y, versus 0.2% and 3.0% previously. Initial jobless claims are seen edging up by 5,000 to 199,000 from 194,000.
Asian equities ended on a mixed note. Hong Kong’s Hang Seng gave up 0.59%, while Australia’s ASX 200 advanced 0.50% and Japan’s Topix tacked on 0.29%.
As of 7:25 am, Germany’s DAX and France’s CAC-40 have each climbed 0.98%, and the UK FTSE 100 is 0.43% firmer. S&P 500 futures have dipped 0.22%, the US dollar index sits at 102.15, and the US 10-year yield is 5.003%.
EURUSD has slipped through a 1.1125-1.1161 range to 1.1131 as the dollar regained its footing during the European session, with French debt anxiety never far from traders’ minds. The ECB is expected to leave rates at 2.50% and how Lagarde weighs sticky inflation against anaemic growth will set the tone for what comes next. October sentiment surveys produced some choppy trade, with consumer confidence stuck at -17.9, as expected, and economic sentiment dipping to 96.7 from 97.9.
GBPUSD is digesting yesterday’s post-FOMC gains within a 1.3296-1.3337 band, having backed away from its session high in early NY trading. Relief is the dominant mood after Chancellor John Healy’s budget passed without any nasty surprises. Attention now turns to the BoE’s November 5 meeting next week.
USDJPY is holding onto this week’s gains in a tight 157.61-158.07 range, even as the dollar softened in the wake of the FOMC decision. The BoJ concludes its meeting tomorrow, and policymakers are widely expected to sit on their hands.
AUDUSD is leaning on the bottom of its 0.7030-0.7080 uptrend channel, which dates back to October 18, after trading in a 0.7030-0.7068 range overnight. Yesterday’s hotter-than-expected inflation figures, along with RBA Governor Bullock’s admission that inflation is running too hot, all but seal the case for a rate hike on November 3.
