Baystreet.ca - - Loonie soars as CAD/US interest rate spreads widen.
- China cuts its 1-year Medium Term Rate.
- US dollar consolidating yesterday’s losses
USDCAD: open 1.3438, overnight range 1.3420-1.3441, close 1.3432, WTI $71.14, Gold, $2657.14
The Canadian dollar soared yesterday on the back of widening CAD and US interest rate differentials in favour of Canada and because of large stop-loss CAD demand.
US Consumer confidence deteriorated sharply, and the 6.9 point drop was the largest monthly decline since August 2021. Unhappy consumers are a drag on economic growth because if the curtail spending, the US economy will deteriorate. The Fed knows that which is why traders and analysts raised for another 50 bps rate cut on November 7 to 58%.
The 10-year CAD/US interest rate spread widened to -80.5 from -75.7 which added another layer of support to the Canadian dollar. The soaring Loonie triggered stop losses which exacerbated the move.
Overnight, the Peoples Bank of China slashed its 1-year medium term lending facility by 30 bps to 2.0%, which boosted risk sentiment. EURUSD drifted higher in a 1.1178-1.1199 band, gaining additional support from China's recent stimulus measures combined with the softer-than-expected US consumer confidence report from the previous day. Meanwhile, Sweden's Riksbank delivered the anticipated 25 bps rate cut and signaled that two more reductions are likely this year.
GBPUSD peaked at 1.3430 before dropping to 1.3364 in NY trading. Bank of England policymaker Megan Green provided the currency with a bit of support when she said, "I believe a cautious, steady-as-she-goes approach to monetary policy easing is appropriate." That suggests UK rates will remain at current levels for longer than previously expected.
USDJPY dropped during Asian trading hours then rallied from 142.91 to 144.26 in Europe and early New York trading. The volatility is driven by changing sentiment surrounding the Bank of Japan's potential rate hike. Governor Ueda hinted that there was no rush to increase rates, while steady to firm US 10-year Treasury yields also influenced the move.
AUDUSD, rallied from 0.6872 to 0.6909 before retreating in New York trading. The earlier gains were supported by lower-than-expected inflation (2.7% y/y vs. 3.5% in July), marking the first time inflation fell within the RBA’s target range since August 2021.
FX markets will be a tad quieter today due to a lack of top tier Canadian and US economic reports which will allow traders to digest yesterday’s price action.