– BoC cuts rates and indicates more cuts to come.
– US employment data is in focus
– US dollar sank yesterday and is on the defensive today
USDCAD: open 1.3514, overnight range 1.3504-1.3517, close 1.3507, WTI $69.67, Gold, $2515.20
The Canadian dollar rallied despite the Bank of Canada (BoC) trimming its benchmark rate for the third consecutive meeting. The BoC lowered the overnight rate to 4.25% from 4.50% in a move that was widely telegraphed and universally expected. Governor Tiff Macklem believes that the inflation risk is now towards deflation because the labor market is softening which suggests lower consumer spending.
The BoC news was lost in the uproar following the weaker than expected US Job Openings and Labour Turnover Survey (JOLTS). Not only did job openings fall to 7.6 million, far below the forecast but the June results were revised sharply lower as well. That news drove the US 10-year Treasury yield down 9 bps to 3.75% and ended the 26 month period of yield curve inversion.
More employment data is on tap today. The ADP Employment Change for August is expected to show an increase of 23,000 jobs, bringing the total to 145,000. Weekly jobless claims are also projected to drop by 1,000 to 230,000. If these reports come in lower than expected, yesterday’s price action could be repeated.
EURUSD is trending slightly higher, trading within a range of 1.1075-1.1101 as markets await today’s U.S. employment figures. Traders largely brushed off the news of Eurozone Retail Sales increasing by 0.1% m/m in July, as the result matched expectations. Focus is now shifting to the upcoming ECB policy meeting, where a 25 bp rate cut has already been factored in. However, markets are anticipating a dovish stance in both the official statement and ECB President Christine Lagarde’s press conference.
GBPUSD remains volatile, bouncing between 1.3137-1.3172, with pressure to the downside due to expectations that the Bank of England will hasten its rate cuts. The BoE Decision Maker Panel predicted a 3.5% rise in prices over the next year, a slight improvement from the 3.7% forecast last month, signaling that inflation is trending in the right direction.
USDJPY extended its losses from the previous session, trading between 143.05 and 143.91, after the U.S. dollar took a hit from the JOLTS report, which revealed job vacancies at their lowest level since the pandemic. The U.S. 10-year Treasury yield also dropped from 3.84% to 3.75%, further driving the move.
AUDUSD remained within a tight 0.6714-0.6734 range, showing little response to Australia’s trade balance data (actual: 6.009b, forecast: 5.15b, previous: 5.42b) or to comments from RBA Governor Bullock. She reiterated that it is too early to consider rate cuts and does not expect the RBA to be in a position to lower rates in the near future.
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