News & Analysis


The loonie grabbed onto the climb higher in oil prices yesterday to sustain its recent rally. USDCAD ultimately hit a fresh low, trading at levels not seen since the end of July, but failed to hold its gains upon closing. Today, the loonie has all but reversed yesterday’s gains, and with little on the data calendar for both the US and Canadian dollar today, oil markets and broad G10 moves will likely be the dominant drivers of USDCAD.


The dollar broadly softened yesterday as Powell’s reiteration of the Fed’s stance on Friday failed to stem calls for another rate cut this month. Yesterday saw US Treasury yields rally, especially at the back-end of the curve, as positive sentiment oozed back into the market following news that the US and China would resume trade talks. However, the bond market has handed the Fed an important dilemma – either the bank bows to the pressure and cuts rates in line with expectations or it defies the market and temporarily sends yields higher. The dollar still remains near its multi-year high but some of the shine has come off over the last week or so. Friday’s labor market data did little to rebut the narrative that the US economy is crumbling under the pressure of heightened tariffs with China, while the manufacturing sector took a hit. The data calendar remains light for the dollar today until the beginning of the inflation data is released tomorrow, starting with the Producer Price Index.


The euro sat in the middle of the G10 currency board yesterday, rallying 0.28% against the dollar after Germany reported a larger trade surplus than expected at €21.4bn in July. In Italy, Prime Minister Conte won the first of two confidence votes in Parliament yesterday after promising to draw a line under past clashes with the EU and vowing to work closely with Brussels on a 2020 budget that consists of lower labor taxes and a minimum wage. Notably, many of the big banks closed their previous long/short calls on the single currency yesterday, citing the momentous ECB meeting on Thursday and the ambiguity of the resulting currency move in the aftermath. This morning the euro has continued its winning streak despite the negative surprise in French Industrial and Manufacturing data this morning.


Sterling etched marginally higher against the US dollar yesterday as July’s GDP figures surprised to the upside with a reading of 0.3% MoM growth. However, this rebound in economic growth following a negative Q2 reading was driven by the service sector solely, which could prove unsustainable given the latest downturn in Service sector PMIs and increase political uncertainty. In Parliament, John Bercow, who is Speaker of the House of Commons, dramatically threw in the towel saying he would not stand at the next general election or would resign come October 31st, whichever came first. On top of this, Boris Johnson’s second attempt to force a snap election was thwarted by Labour in the early hours of the morning and the Benn bill, forcing the PM to request an extension from the EU if no deal is in place come October 19th, was given the royal assent. Finally, Parliament has now been dissolved for 5 weeks ahead of the Queen’s speech, with questions still looming over the likelihood and timing of a snap election. In total, yesterday’s news proved sufficient enough to push sterling up to fresh 5-week highs. Today sees the release of July’s labor market data at 09:30 BST, with average weekly earnings growth expected at 3.7% while the unemployment rate sits near multi-decade lows.