Today's expected range for the Canadian Dollar against the major currencies:
US Dollar 1.3890-1.4140
Euro 1.6130-1.6380
Sterling 1.8670-1.8920
WTI Oil (opening level) $77.66
The CAD/USD is opening at 1.4015 ( 0.7135 )
The US dollar rebounded Monday, effectively erasing the sell-off inspired by the steep drop in crude oil prices Monday on rising hopes for a US-Iran peace deal and the risk premium is removed. The USD has decoupled from its war-headline reaction correlation, or is perhaps also eyeing the modest rebound in treasury yields.
USD traders are nervous ahead of what is likely to prove a very different communication style from the Fed as Kevin Warsh chairs his first Fed meeting Tuesday and Wednesday, with a press conference to follow the monetary policy statement on Wednesday.
Headlines
· The Bank of Japan, as expected, increased its short-term policy rate by 25 bps to 1.00 percent, taking the cost of borrowing to its highest level in 31 years as the country adjusts to higher inflation. The BoJ signalled that it intends to continue the normalisation process, raising interest rates further while reducing monetary accommodation by stopping the “tapering” of JGB purchases from April next year, after which it will maintain a steady pace of bond buying. The US dollar/ yen exchange rate held steady above 160 following the announcement.
· Australia’s RBA kept its key interest rate unchanged at 4.35 percent after signs that the previous three hikes are beginning to weigh on the economy. The bank did warn that inflation remains too high and will do what is necessary, including increasing rates further if required. Australian yields fell at the front end of the curve after the statement release.
· China’s consumer spending and investment have slumped to levels last seen during the pandemic, with retail sales declining 0.6% YoY in May, while fixed asset investment shrank 4.1%, far more than was expected in the first five months of the year. Industrial production rose due to resilient exports highlighting a domestic imbalance between strong supply and weak demand.
· A prospective US-Iran peace deal to reopen the Strait of Hormuz has eased fears of an energy-driven inflation shock and rate hikes. The interim accord is slated to be signed in Switzerland on Friday, though the unreleased text of the memorandum is keeping investors cautious.
· The NAHB Housing Market Index fell to 35 in June from 37, below expectations. Current sales dipped to 38, expectations stayed at 45, and buyer traffic remained weak at 25. More builders cut prices (35%) with 6% average reductions, and incentives edged up to 62%.
· US industrial production rose 0.1% in May, below the 0.3% forecast and after a revised 0.9% gain in April. Manufacturing was flat, mining rose 1.3%, and utilities output fell 0.4%. Capacity utilization edged up to 76.2%, still 3.2 points below its long-run average.
· The Empire State Manufacturing Index fell to 5.7 in June from 19.6, well below expectations, signaling a sharp slowdown. Still, new orders, shipments, and unfilled orders rose, employment and hours increased, price pressures stayed elevated, and firms remained broadly optimistic about the outlook.
Key Points
· Equities: US surged on peace hopes and AI strength, Europe edged up but energy lagged, Asia extended gains with Korea leading.
· Volatility: Fed decision, VIX -8%, downside skew
· Digital Assets: Bitcoin above $66k, ETHA outperforms, crypto stocks rally, ETF outflows ease
· Commodities: Oil steadies after sharp sell-off; gold traders turn to FOMC after rebound
· Fixed Income: US treasury yields rebound after Monday drop as crude oil price swings seem to be losing their influence on yields.
· Currencies: USD bounces back ahead of FOMC Wednesday. JPY sideways to firmer after BoJ delivers no surprises. AUD lower post-RBA.