– Rising tensions in Middle East spark risk aversion trades.
– Japanese yen sinks on talk that rate hikes are on hold.
– US dollar rallies across the board, JPY underperforms.
USDCAD: open 11.3535, overnight range 1.3496-1.3531, close 1.3503, WTI $71.34, Gold, $2645.10
The Canadian dollar erased all of yesterday’s gains due to widespread US dollar demand as investors seek safe-havens due to escalating tensions between Iran and Israel.
The Canadian dollar is also under pressure after CIBC economists predicted that the Bank of Canada would cut rates by 50 bps at each of the next two meetings. The rational is that the domestic economy is extremely weak and struggling while falling inflation, which has hit its 2.0% target risks dropping further sparking deflation. That forecast may provide additional USDCAD support in the 1.3440-50 area.
The Canadian dollar is not getting any (or much support from oil prices. WTI is well-below this week’s peak. However, prices saw a bit of support after Saudi Arabia denied claims that it warned Opec producers that oil would drop to 50/b if they cheated on quotas.
EURUSD remained within a narrow range of 1.1025-1.1050, with the pair pressured by widespread demand for the US dollar. Despite composite and services PMI reports coming in slightly better than expected, traders largely disregarded the data, as the market is anticipating a 25 basis point rate cut from the European Central Bank on October 17.
GBPUSD, dropped to 1.3106 from 1.3274 following dovish comments from Bank of England Governor Andrew Bailey. He hinted that a more aggressive stance in reducing interest rates may be needed if inflation data continues to improve.
USDJPY saw a notable increase, climbing from 146.28 to 147.24, as comments from the new Prime Minister and Bank of Japan Governor Ueda suggested that Japan’s economy wasn’t ready for another rate hike.
AUDUSD traded in a 0.6845-0.6889 range with prices weighed down by risk aversion and mixed economic data. Australia’s Services PMI weakened at the end of Q3, but the news was slightly offset by an increase in the trade surplus.
Today’s US data includes, Weekly jobless (forecast 220,000), ISM Services PMI and Factory orders. Fed speakers include In addition, Kansas City Fed President Jeffery Schmid, Atlanta President Raphael Bostic, and Cleveland Fed President Neel Kashkari.
