– US Durable Goods expected to rise 0.6%
– WTI oil recouping losses
– US dollar slips on profit-taking ahead of Powell speech
USDCAD Snapshot open 1.2974-78, overnight range 1.2946-1.2984, close 1.2958, WTI oil $94.59, Gold $1749.07
The Canadian dollar is drifting in a USDCAD range of 1.2940-1.3040 and will likely continue to do so until Fed Chair Powell delivers his speech at the Jackson Hole symposium.
The markets are hoping to get some clarity on the future direction of US rates. Will the Fed pivot from rate hiking to rate cutting in 2023?
An analyst at JP Morgan, Marko Kolanovic, thinks so. He believes “inflation will work itself out” and drive stocks higher as supply chain disruptions are resolved. He thinks the Fed over-reacted when they hiked rates 75 basis points on July 27 and that raising rates aggressively ahead of the US elections in November would be a mistake.
Mr Kolanovic also believes China will see a second-half recovery.
However, it may be just wishful thinking to hope that the increase in US interest rates from “near-zero” to “neutral” will be enough to contain inflation. The war in Ukraine and sanctions against Russia, combined with Opec suggesting production is very close to capacity, will keep oil prices and inflation elevated.
Fed policymaker Neel Kashkari is channeling his “inner hawk.” The Cleveland Fed President said the Fed could not relax on rate hikes until there is compelling evidence that inflation is heading towards 2.0%.
West Texas Intermediate continues to recover from Monday’s low, with prices rising from $93.38 to $95.19/barrel overnight. The gain was supported by the American Petroleum Institute crude stock report showing inventories fell 5.632 million barrels in the week ending August 19.
Asian equity indexes traded negatively, led by a steep drop in China’s Shanghai Shenzhen CSI 300 index, which lost 1.89%.
Australia’s ASX 200 managed to gain 0.52%. European bourses are directionless and drifting on either side of unchanged. S&P 500 futures are scraping out a small gains while the US 10-year Treasury yield sits at 3.05%.
EURUSD gave back all yesterday’s post-US data gains and traded with a negative bias in a 0.9918-0.9972 range. There were no economic reports leaving traders to fret about the European energy crisis.
GBPUSD is at the bottom of its overnight 1.1772-1.1837 range. The UK economic calendar was empty, which helped keep the focus on the UK’s energy woes and inflation worries, domestic politics, and Brexit.
USDJPY is clawing back yesterday’s post-US data losses and rallied from 136.18 to 137.03, with the US 10-year Treasury yield above 3.0% underpinning the currency pair.
US Durable Goods Orders for July are expected to rise 0.6% m/m compared to 2.0% in June.