Baystreet.ca - - Loonie lagging commodity currency bloc gains.
- Fed Powell pushes back against 50 bp rate cut speculation.
- US dollar rebounds against majors except against antipodeans.
USDCAD: open 1.3533, overnight range 1.3490-1.3540, close 1.3526, WTI $67.11, Gold, $2649.02
The Canadian dollar is sluggish. The Loonie could not get any upward traction after August GDP rose a smidgen more than expected because the focus was on the outlook for US rates. In a addition, the usual month end portfolio rebalancing flows muddied the waters.
Canada’s GDP rose 0.2% m/m in August (forecast 0.1%) and although the result is better than expected RBC (TSX:RY) economists noted that GDP is tracking at 1.0% q/q annualized, well below the Bank of Canada’s estimate of 2.8%.
The Canadian dollar is also undermined by falling oil prices. WTI dropped from 68.43 to 66.34 overnight, before climbing to 67.60 in NY trading today. Prices are depressed as Opec’s previously announced increased production begins today.
Despite all of the above, it was Fed Chair Jerome Powell’s dovish comments yesterday that fueled the Canadian dollar losses. Yesterday Mr Powell told the National Association for Business Economics that “ This is not a committee (FOMC) that feels like it is in a hurry to cut rates quickly." His comments slashed the odds for a 50 bp rate cut in November from 68% to 38.8% and sent the US dollar soaring.
EURUSD dropped from 1.1209 on Monday to 1.1085 today in New York, driven by various factors. Dovish comments from ECB President Christine Lagarde, hinting at quicker rate cuts, dampened sentiment, while Fed Chair Jerome Powell's stance against rapid Fed easing added to the pressure. Weaker-than-expected Core-HICP data (1.8% compared to the 1.9% forecast) and lower German inflation (1.6% year-over-year, down from 1.9%) further reinforced Lagarde’s position.
GBPUSD remained under pressure in a 1.3326 to 1.3423 range since yesterday. Powell’s indication of a slower rate cut pace contributed to the pound’s weakness, along with concerns about potentially unfavorable business policies from the new government.
USDJPY see-sawed within a 142.37 to 144.54 range since Monday, influenced by Japan’s political scene, lower chances of Bank of Japan rate cuts, and Powell's dovish comments. Japanese Prime Minister Shigeru Ishiba’s call for an October 27 election and the BoJ's outlook that rates may remain unchanged longer than expected have also been key factors.
AUDUSD bounced between 0.6898 and 0.6942 since Friday’s close. Powell’s remarks, along with significant fiscal and monetary stimulus announcements from China, have influenced trading. Further support for the Aussie came from August Retail Sales, which grew 0.7% month-over-month, surpassing the forecast of 0.4%.