– Bond traders driving FX markets
– US 10-year Treasury yield drifts lower, ahead of US GDP and jobless claims data.
– US dollar consolidates Wednesday’s gains but off its best levels.
USDCAD: open 1.3721, overnight range 1.3709-1.3736, close 1.3718, WTI $78.92, Gold, $2332.52
The Canadian dollar dropped sharply yesterday after traders reduced their expectations for earlier-than-expected Fed rate cuts. Robust economic data released in the past week and hawkish comments by Fed officials fueled a spike in Treasury yields, with the US 10-year yield rising to 4.62%. That was bad news for CAD/US interest rate differentials, which widened in favor of the USD, sinking the Canadian dollar in the process.
Expectations for the Fed to leave interest rates unchanged for most of 2025 contrast with the outlook for the Bank of Canada. The BoC is expected to cut rates by 25 bps on Wednesday. It may not be all bad news for the Canadian dollar. Policymakers could cut rates and then signal that inflation must fall further before there are additional rate cuts.
Asian equity indexes followed Wall Street’s lead and closed with losses. Japan’s Nikkei 225 index fell 1.30% while Australia’s ASX 200 lost 0.49%. European bourses have shrugged off negative sentiment and are modestly higher across the board, led by a 0.28% rise in the UK FTSE 100 index. S&P 500 futures trades are far less positive, and that index is down 0.37%. Month-end flows may also play a role today, tomorrow, and Monday as the S&P 500 is up 4.59% MTD. Today’s US data includes Q1 GDP (first revision forecast 1.3%) and jobless claims forecast 218,000.
EURUSD has climbed to 1.0822 in NY from an Asian low of 1.0788, garnering some support from mixed Eurozone data. Economic sentiment improved to 96 from 95.6, but consumer confidence was unchanged.
GBPUSD is consolidating yesterday’s losses in a 1.2681-1.2723 range. The currency pair is on the defensive due to fears that “higher for longer” US interest rates will result in weaker-than-expected global growth.
USDJPY is trading at the bottom of its 156.54-157.68 range due to renewed fears of BoJ intervention but is supported by the rise in US Treasury yields.
AUDUSD shuffled in a 0.6591-0.6621 range overnight as fears of higher US rates stoked negative risk sentiment
