News & Analysis


Trading in the Canadian dollar was fairly benign for most of Monday’s session, but there were two brief flashes of excitement. A general feeling of market malaise led the loonie to slowly weaken throughout the day, alongside most other risky assets. Two hours after North American markets opened, news that Saudi Arabia was looking to produce 500k more barrels of crude oil per day sent the price of WTI crude sharply lower to $75 per barrel. The loonie, which is hindered when oil prices are low, immediately woke from its slumber, selling off in tandem. After a three-hour lull, the newswires started buzzing again. Saudi officials disputed the notion that they wished to increase the supply of oil, saying that they were prepared to do the reverse if needed to support oil prices. Within moments, oil was back to $79, while the loonie pared back the losses it sustained following the initial oil news. The rest of the day was quiet, and the loonie resumed its prior trend, gradually weakening until markets closed. On today’s agenda, we have a fresh Canadian retail sales report at 08:30 / 13:30 GMT and a speech from the Bank of Canada’s Carolyn Rogers on financial stability—a major concern at the moment given Canada’s high levels of mortgage debt.


The dollar soared yesterday on risk-off trading as concerns over Chinese lockdowns weighed on pro-cyclical assets. However, despite the greenback’s rally, the broad dollar still remains some distance from where it was trading prior to October’s CPI release less than two weeks ago. This is due to one of the two main drivers of the risk rally, the Fed’s deceleration in the tightening cycle, remaining intact. Following yesterday’s retracement, the dollar’s rally has seemingly stalled along with the climb higher in US yields overnight, keeping the DXY index some 2.24% off pre-CPI levels. This is largely due to dovish commentary by both non-voting FOMC member Mary Daly and voting member Loretta Mesta. Speaking at separate events, both regional Fed presidents highlighted that a level of caution is needed in monetary policy decisions to avoid overtightening. With Daly’s views already known and carrying less impact because she doesn’t currently vote on policy, it was Mester’s statement that the tightening cycle was entering a new “cadence” that stopped the dollar’s rally in its tracks. The shift in the market focus from China’s growth outlook back towards easing pressure from Fed policy highlights the precarious macro environment that is keeping intraday volatility in most G10 FX pairs elevated, especially as the overnight decline in the dollar coincides with 27,307 new Covid cases reported in China. This is close to the previous record of 28,973 reached in April during Shanghai’s outbreak that caused multiple municipalities to enter full-blown lockdowns. Today, with very little released in terms of economic data and Fed’s Mester, George and Bullard set to speak again to markets, price action may be limited as traders look towards tomorrow’s FOMC meeting minutes and the latest flash PMIs.


The euro fell 0.75% against the dollar yesterday, breaking key support levels in doing so to trade back towards levels seen shortly after the release of the US CPI report. However, the decline in the euro has seemingly fizzled out overnight despite commentary from ECB members over the past 24 hours taking a more dovish tone as policy officials continue to point towards a year-end rate of 2%. Speaking to Market News International yesterday, ECB Chief Economist Philip Lane stated that “one platform for considering 75bps is no longer there” as he stressed the need to incorporate the cumulative effect of the tightening cycle thus far when deciding on the next policy decisions. With China’s economic outlook remaining bleak as Covid cases continue to rise and ECB officials guiding markets to a flatter rate path going forward, the euro’s resistance to further depreciation is notable. This may only be a temporary period of reprieve, however, as tomorrow’s flash PMIs for November is likely to bring the eurozone’s weakening fundamentals back to the fore for traders.


In a session characterised by the rebound in the dollar, price action in the pound was notably subdued. Falling just 0.46% on the day, sterling ranked as one of the better performers against the dollar on the day. This stands in contrast to price action over the past month and a half, which has seen sterling outperform on broad US dollar weakness. Although it is arguably too early to say, especially amongst a very light few sessions of late, the signs are starting to become visible that GBPUSD may have entered a new near-term range. The main test of this hypothesis will come in the form of November’s flash PMIs tomorrow. Expected to show a further deepening in the economic slowdown, the data will test traders’ resolve against the deteriorating fundamentals in the UK.



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