– Odds of 50 bp Fed rate cut rise.
– Russia expels 6 UK diplomats
– US dollar trading defensively.
USDCAD: open 1.3573, overnight range 1.3565-1.3585, close 1.3579, WTI $69.83, Gold, $2568.15
The Canadian dollar drifted aimlessly yesterday and overnight despite the US dollar coming under pressure against the other G-10 currency pairs. Yesterday, US inflation data and the European Central Bank lived up to expectations. CPI and PPI were lower than expected, which reinforced the view that inflation was trending lower, leaving the Fed to keep its focus on the employment picture. The ECB cut its benchmark rate by 25 bps, and President Christine Lagarde noted that the direction for rates was “pretty obvious.”
Former New York Fed President Bill Dudley argued that there was a strong case for a “50 bp” Fed rate cut, claiming rates were about 150-200 bps above the so-called neutral rate. Bond traders liked what they heard and drove the US 10-year Treasury yield down from 3.70% to 3.62%.
WTI oil prices are bid, partly due to supply disruption concerns from Hurricane Francine. WTI is near the top of its 69.19-69.94 range in NY trading.
Asian equity markets closed mixed to lower. Australia’s ASX 200 and Hong Kong’s Hang Seng indices rose 0.30% and 0.75%, respectively, while Japan’s Topix lost 0.82%, mainly due to the soaring yen. European bourses are in positive territory, led by a 0.51% gain in the German DAX, while S&P 500 futures are up 0.17%. Gold is the big winner, rising $54 to 2567.00.
EURUSD traded in a 1.1070-1.1101 range overnight after the ECB cut rates by 25 bps yesterday. ECB President Christine Lagarde remarked that the direction for rates is “fairly clear,” but stressed that the pace of adjustments would depend on incoming data. This cautious tone, along with increased optimism for a 50 basis point rate cut by the Fed, drove gains in EURUSD.
GBPUSD traded firmer in a 1.3123-1.3153 range, supported by diverging interest rate paths between the Bank of England and the Fed/ECB. While the latter two are leaning toward further rate cuts, the BoE is expected to keep its key interest rates unchanged at next week’s meeting.
USDJPY plunged from 141.88 to 140.37 due to the latest outlook for US rates. The US 10-year Treasury yield dropped from 3.70% yesterday to 3.622% today.
AUDUSD hung on to yesterday’s gains and traded in a 0.6711-0.6733 range, mainly due to broad-based negative US dollar sentiment.
