CAD
The loonie’s seemingly inexorable move higher continued on Tuesday, making it the fifth down session in a row for CAD. This move looks at little risk of petering out this morning too, with USDCAD making further gains on falling oil prices. Looking ahead, however, Friday’s job report remains the main risk event of the week for loonie traders. We look for a weak set of prints, which should see USDCAD consolidate above 1.37 if realised.
USD
After a quiet Tuesday session, there are two stories front of mind this morning. The first is Hurricane Milton, which is barrelling towards Florida, and due to make landfall this afternoon. Our base case remains that the impact on FX markets should be limited. Nevertheless, the concern from authorities suggests that the storm’s impact is worth keeping an eye on as a risk. The second story centres on Chinese stimulus efforts. We have remained firmly in the sceptic camp over recent weeks, suggesting that while efforts to boost the economy are welcome, they are too small to fully address the immediate challenge and fail to fix longer-term structural issues. As such, news that China’s Ministry of Finance will hold a briefing on Saturday, is noteworthy, albeit an event that we think holds two-sided risks for FX markets.
Looking forward, FOMC meeting minutes published this evening, should be the key economic event for today. We suspect they will indicate that September’s decision to trim rates by 50bps was a one-off, not the start of a trend. That said, with markets already incorporating this view following hot payrolls earlier this month, and with this likely to leave the minutes looking somewhat dated, market impact from this evening’s commentary is likely to be somewhat limited.
NZD
As expected, the RBNZ trimmed rates by 0.5% overnight, a decision that has left the kiwi the standout mover this morning. As we noted yesterday, while 50bps was the base case, there had been risks of a smaller 25bp cut. As such, this larger dose of policy easing has seen NZD trade under pressure post-announcement, down almost 0.75% against the dollar.
EUR
The euro has continued its grind lower early this morning. This comes as the ECB’s Stournaras explicitly backed the idea of two 25bp cuts to end this year. This follows comments from Bank of France Chief Villeroy, who recently reiterated his view that an October cut to rates was “highly likely”. All told, this keeps EURUSD comfortably below 1.10 and headed towards 1.09, with ECB speakers likely to remain front of mind for markets ahead of next week’s rate decision.
GBP
The London open has seen a sharp move lower for GBPUSD despite little if any, domestic news. Given our view that UK growth remains resilient, and that the BoE is likely to ease more slowly than other major central banks, this has left the pound looking even cheaper than previous levels that we already viewed as attractive. We think this should be on show later today too, with the BoE credit conditions survey should be the main release of note for sterling traders. Given our view on growth, we expect a relatively benign read, which should support sterling upside.
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