Steve Brown, Senior Corporate Trader | Stevebrown@vbce.ca
The CAD saw some early strength this past week after strong retail sales saw USDCAD eclipse the prior-week's post U.S. FOMC plunge (1.3275). The move to 1.3263 – the March low - was short-lived with the pairing rebounding back above the 1.33 level. On top of the strong retail sales report, oil enjoyed a brief 3% rise early in the week only to see the gains erased with 5% plunge sending USDCAD up to a 1 week high of 1.3409 on Wednesday. Broad-based USD weakness prevailed for much of the week but further downside moves in USDCAD found support near the 1.3316 level. Canadian inflation data was slightly softer than expected keeping USDCAD anchored near 1.3380 into the weekly close. The JPY was a strong performer hitting 4 month highs against the CAD on a combination of Japanese fiscal year-end repatriation flows and overall market risk aversion flows. The GBP also enjoyed some strength in position squaring ahead of the March 29th triggering of Article 50 (Brexit). The AUD saw strength early in the week as it challenged a 4 year high of 1.0330 against the CAD before succumbing to falling iron ore prices, risk aversion flows, and dovish tones in the central bank minutes.
Yesterday, USDCAD initially dropped from 1.3375 down to 1.3320 before climbing to 1.3405. The move higher was short-lived with a decline to 1.3362. The pairing would bounce to hold near 1.3375/85 for the balance of the session. Overnight, USDCAD tested the 1.34 level a few times during the London session before falling to 1.3360 in early North American trade. Another rally stalled at 1.3386 and despite dovish comments from Bank of Canada's Poloz (talking about recession risks to raising interest rates too early / interest rate cuts still on the table) USDCAD has since fallen to session lows. The GBP was trending higher overnight targeting 1.69 – a 4 month high but has since given up its gains as markets square positions ahead of the triggering of Article 50 (implementing the start of Brexit) tomorrow.
U.S. stocks fell with the dollar while Treasuries rallied as investor doubts grew that U.S. President Donald Trump will be able to implement his economic agenda. The yen gained with gold on haven demand. The S&P Index pared declines after falling almost 1%, as selling in defensive shared eased. Banks bore the brunt of declines, with a KBW index of lenders pushing losses since March 1 past 10% after the Republicans' failure to pass a health care bill raised the specter that promised pro-growth policies may be delayed. The greenback was on the verge of erasing the rally spurred by Trump's election victory, while Treasury 10-year yields fell to 2.35%. On Wednesday U.K. Prime Minister Theresa May will write to the EU President Donald Tusk to officially trigger Article 50 of the Lisbon Treaty, which will start the 2 year countdown to Britain leaving the European Union. There are already signs that the negotiating process may be a difficult one, with the Bank of England this morning saying Brexit remains one of the key risks to the U.K. economy.
Yesterday, USDCAD initially dipped from 1.3340 down to 1.3316 before climbing to 1.3355. A subsequent dip to 1.3316 was short-lived with USDCAD bouncing to hold near 1.3340/50 for the balance of the North American trading session. Overnight, the pairing climbed to 1.3379 before falling to test session lows @ 1.3345 prior to the 5:30am release of the Canadian inflation data. A slight miss combined with better than expected U.S. data sent USDCAD up to 1.3385. After a brief move back to 1.3360, the pairing has again bounced to test the 1.3385 level. Oil prices continue to struggle holding below the $48 level while most currency pairings have seen limited moves as markets await the results of Trump's healthcare plan vote due out at 1:45pm this afternoon.
Yesterday, USDCAD climbed from 1.3347 up to 1.3409 before falling back to 1.3370. Several repeated attempts to regain the 1.34 level failed and the pairing drifted lower towards 1.3320 over the balance of the North American trading session. Oil prices recovered despite a sizeable increase in oil inventories while the USD broadly weakened on reports that Trump may not have the votes to push through his healthcare plan. This could be the precursor for Trump's ability to advance through his other pro-growth policies. Overnight, USDCAD held an uneventful 1.3316 – 1.3355 range which has been even narrower so far in this morning's session. The JPY continues to outperform with JPYCAD trading near 4 month highs as yen repatriation season comes into effect before the March 31 fiscal year end. After trading near a 4 year high earlier in the week, AUDCAD has fallen to 1.0170 (from 1.0330) on sliding iron ore prices and dovish central bank minutes.
The global selloff continues, oil prices slide at a bad time for drillers, and a rate rise in Chinese money markets put pressure on interbank lending. Yesterday's drop in U.S. equities, which saw the largest fall since President Donald Trump was elected, has spread across the world. Overnight, the MSCI Asia Pacific Index fell 1.4% while Japan's Topix lost 2.1%. In Europe, the Stoxx 600 Index was 0.9% lower 5:15am EST with almost all industry groups falling. U.S. stock market futures were also weaker. Goldman Sachs Group Inc and Morgan Stanley have revealed that they are planning to move staff and operations from London to elsewhere in the EU as Prime Minster Theresa May prepares to trigger Britain's exit from the bloc. Away from finance, carmaker BMW said it's reviewing its factories in the UK, noting that it has flexibility to shift production elsewhere. Consultancy firm Mercer said in a report that the hospitality industry is most at risk from Brexit.
Yesterday, USDCAD initially fell from 1.3350 down to 1.3304 before bouncing to 1.3374. The pairing would hold a 1.3340/65 range for the balance of the North American session. USDCAD had a quick move to 1.3321 in Asian trade before climbing to 1.3366 on broad-based USD strength on the back of dovish Australian central bank minutes. The trend changed in London with higher than expected UK inflation leading the GBP higher across the board and sending USDCAD down to 1.3310. Strong Canadian retail sales data propelled USDCAD down to 1.3263, breaking below last week's 1.3276 low. However, the move could not be sustained and USDCAD rallied back to session highs near 1.3335 as oil plunged nearly 3% after comments about Russia extending oil cuts and risk aversion flows sent the yen higher / stocks lower.
The S&P 500 Index turned higher as declines in Treasury yields boosted shares coveted for their steady payout. Crude's ninth retreat in the past 11 days dragged oil and gas producers lower. The pound was little changed after reversing gains, as the UK said it will trigger the process to leave the EU on March 29th. Gold touched the highest level in 2 weeks. Today investor focus turned to the outcome of a Group of 20 meeting, where finance ministers locked heads issuing a statement that dropped a reference to resist all forms of protectionism. That's renewing concerns about the U.S. president's desire to pursue new trading terms. The USD slumped last week after the Federal Reserve delivered a more dovish message than expected, even as it raised interest rates. FBI Director James Comey testified before congress today. While he is due to speak about the continuing investigation into Russia's alleged meddling in last year's election, President Donald Trump's Twitter claims about wiretapping are likely to dominate proceedings in the rare open session.
Yesterday, USDCAD climbed from 1.3276 up to 1.3350 retracing a portion of Wednesday's plunge from 1.3480 down to 1.3280. Overnight, USDCAD eased lower towards the 1.3310 level as oil prices gained to $49 and the USD eased across the board. The pairing tested the 1.3304 level this morning on the back of better than expected Canadian manufacturing sales. The move lower was short-lived as USDCAD has since climbed testing yesterday's 1.3350 high. The USD and the JPY are the best performing currencies this morning as global equity markets struggle to find gains.
World stock indexes surged to record highs on Thursday while the dollar traded close to a one-month low after the Federal Reserve hiked U.S. interest rates but signalled no pick-up in the pace of tightening.
Markets also reacted positively after Dutch center-right Prime Minister Mark Rutte fought off a challenge by anti-immigration, anti-European Union rival Geert Wilders to score an election win seen as a victory against populist nationalism. The result, along with the Fed statement, handed the euro its biggest one-day jump in nine months, with the single currency climbing above $1.07 for the first time since early February late on Wednesday and staying above that level, though a touch down on the day, in European trade on Thursday. The MSCI world equity index, which tracks shares in 46 countries, jumped 0.7 per cent on the day to reach an all-time high after the Fed lifted its funds rate by 25 basis points, but said further increases would only be "gradual."
U.S. stocks edged higher as crude rebounded from a November low, while Treasuries advanced and the USD slipped before the Federal Reserve's anticipated rate increase at 11am, followed by Yellen's press conference at 11:30am. If market and economist expectations are correct, the central bank will raise interest rates 25 basis points. Investors will watch the post-decision press conference and forecasts from the bank closely to try to gauge the pace of future tightening. Volatility has returned to the crude market, with oil seeing intra-day moves of more than 2% in 4 of the last 6 session. Yesterday's news that Saudi Arabia has raised production drove the price of a barrel of West Texas Intermediate for April delivery close to $47, with the price rebounding later in the session after a report showed US stockpiles dropping. For U.S. shale producers, these fluctuations are less of a concern than might be expected as many of them have successfully hedged prices for most of the rest of the decade.
Most European stocks retreated as signs of caution started to show in markets before this week's packed schedule of events, which includes a U.S. interest rate decision. The pound tumbled vs the US dollar as the British Prime Minister won permission to trigger the country's departure from the EU. The Stoxx Europe 600 Index headed for the first decline in five days as every industry except healthcare traded in the red. Sterling dropped to the lowest since mid-January as parliament paved the way for Theresa May to begin talks with the European Union over Britain's exit. The yield on 10-year Treasuries remained near the highest level of the year and oil fluctuated after declining for six straight days. Expectations the Federal Reserve will raise borrowing costs at a faster pace than was expected at the start of this year have surged as data globally pointed to firming growth and accelerating inflation. The question for most traders now is how fast the Fed will move, and they'll be scouring the statement and any comments accompanying Wednesday's expected quarter-point increase for clues. The Bank of England, Swiss National Bank, Bank of Japan and Bank Indonesia are expected to keep monetary policies unchanged on Thursday. Oil traded near a three-month low as U.S. crude stockpiles were seen rising for a 10th week, but West Texas Intermediate managed to add 0.4 per cent to $48.61 a barrel.
Steve Brown, Senior Corporate Trader | Stevebrown@vbce.ca
The USD continued higher vs most currencies before easing back during Friday's session. U.S. employment data beat expectations although the official payroll numbers fell short of Wednesday's ADP surprise beat. Overall, the data supports an interest rate hike at next Wednesday's 11:00am Fed announcement. The CAD broadly weakened before recovering Friday after another strong employment report. Canada added more than 100,000 full time jobs in February, the most in any given month since 2006. USDCAD hit 1.3535 on Thursday, the highest level since a brief stint near 1.3600 on Dec. 28th before falling to 1.3421 after the jobs report. Oil had one of its worst weeks in a year losing 10% to $48.34 after having held near $52-$54 for the past 3 months. Despite rising U.S. yields, the EUR rebounded to trade near 1 month highs vs. USD and 4 month highs vs. CAD on an optimistic / less dovish European Central Bank.
Markets were largely range-bound as investors enter a week with crucial central bank meetings, economic data releases, a national election in Europe and potentially the formal start of Brexit. Stocks fluctuated with the dollar, while Treasuries slipped. There is a near universal agreement that the Federal Reserve will increase interest rates when the latest FOMC decision is announced on Wednesday. A survey of economists conducted by Bloomberg produced a median estimate of 3 hikes this year, coming in March, June and December. There are also monetary decisions due from the Bank of Japan and the Bank of England on Thursday. Scottish First Minister Nicola Sturgeon said she'll start the legal process of preparing for a 2nd independence referendum, threatening to open a new front in the Brexit battle as the UK government prepares to trigger negotiations. Sturgeon said the referendum would be held between the fall of 2018 and the spring of 2019.
Yesterday, USDCAD climbed from 1.3482 up to 1.3535, the highest rate in nearly 1 year before settling in a 1.3495 – 1.3528 range for the balance of the session. U.S. jobs data came in pretty much as expected this morning leaving little doubt for the U.S. Fed to proceed with an interest rate hike next Wednesday. The Canadian jobs data beat expectations with very strong full-time job gains – the highest number of full-time jobs added for any given month over the past decade. USDCAD quickly tumbled from 1.3507 down to 1.3421 on the news. The USD weakened across the board while oil prices gained 2% in the immediate aftermath of the jobs report. However, the trend abruptly changed with oil prices having since fallen towards a 3 month low sending USDCAD up to 1.3480. A brief dip to 1.3440 has since been followed by another move up to 1.3480 (previous support now turned resistance).
World shares chalked up their longest losing streak in well over a year on Thursday as bets on rising U.S. interest rates propelled the dollar and benchmark bond yields higher and beaten-up commodity markets struggled to find a footing. With global energy stocks on the run, MSCI's 46-country All World index fell for a sixth consecutive day, the longest slide since the start of 2016 and down from an all-time high set just weeks ago. Europe's main markets also started in red though the euro was one of the few currencies to make headway against the dollar as focus turned to how the European Central Bank will respond to signs of a pick up in the euro zone economy. ECB policy makers meet later. Economic data out of China continued to surprise, with consumer inflation coming in well under expectations at an annual 0.8 per cent, largely due to falling food prices. Producer prices still rose at the fastest pace since 2008, keeping alive hopes that China had stopped exporting disinflation to the rest of the world. The dollar index was last up 0.1 per cent, close to a March 2 peak of 102.26. The dollar also climbed to a three week high 114.85 yen and set seven-, nine– and 10-week peaks against the Aussie, Kiwi and Canadian dollars. Spot gold was at $1,204.90, having struck a five-week low as higher interest rates raised the opportunity cost of holding the non-yielding metal.
U.S. Treasuries headed for the longest streak in 5 days and the Dollar rose as a private reading on U.S. payrolls exceeded expectations fueling bets the Federal Reserve will lift borrowing costs next week. U.S. stocks advanced after a 2 day slide. With a rate increase being priced into the market as a near certainty, bond yields are catching up with expectations for accelerating inflation. At the same time, price swings in bonds, currencies and stocks are all falling, signaling investors are sanguine about the prospects for global growth against the backdrop of higher borrowing costs. In the UK, Chancellor of the Exchequer Philip Hammond said during his speech this morning at Parliament that the Office for Budget Responsibility now sees 2017 economic growth of 2% compared with the 1.4% it predicted in November. He argued that Britain is well placed to weather the challenges as PM Theresa May prepares to trigger formal talks with the EU later this month, even as the latest prediction lags the forecast of 2.2% made a year ago before Britain voted to quit the bloc.
European stocks fell for a third consecutive day on Tuesday, once again dragged down by financials as shares in Deutsche Bank slid on deepening concern about its health after its $8.5-billion cash call.
A batch of weak corporate earnings reports and the biggest fall in German industrial orders since the depths of the global financial crisis also disappointed investors, setting the tone for a lacklustre session in Europe.
In currencies, the US dollar inched higher against a basket of trade-weighted peers. The dollar index rose 0.1 per cent to 101.73, mirroring Monday's slender gain. A rate hike from the Federal Reserve next week is virtually fully priced into financial markets, so the dollar and U.S. bond yields might be vulnerable to a correction lower. But investors saw enough room to push the greenback and yields higher on Tuesday, lifting the 10-year yield for the fifth day in a row back above 2.50 per cent and the two-year yield up a basis point to 1.32 per cent.