The Canadian dollar erased some losses today despite the strong US dollar and robust US sales of new homes
Tuesday 27 September, 2022
Daily Currency UpdateUS sales of new homes unexpectedly rose in the US, pushing the US dollar index close to an almost 20-year high. However, the Canadian dollar erased some losses. The USDCAD traded between 1.3670 and 1.3770 in the North American session.
The Canadian dollar probably did not make new lows today because of the vertiginous rise of the US dollar. This kind of market environment can't last long without a release valve from governments, or it could end in a crisis.
Positive US data surprised the fx markets pushing the US dollar higher and the stock market slightly higher as well.
The sale of new homes rose in the US in August which was good news for the US economy; however, it remains at risk of deterioration as mortgage rates are increasing rapidly.
Furthermore, there were headlines where European gas jumped 19% on the risk Russia may sanction Naftogaz (the largest national oil and gas company in Ukraine), according to Bloomberg. This news helped the US dollar to hold gains in the North American session.
What prevented USD soaring further was Chicago Fed President Charles Evans saying he's "optimistic" that the Fed's forecast rate path will be enough to reduce inflation. However, Fed Minneapolis President Neel Kashkari said the US central bank is committed to restoring price stability, and its current pace of interest-rate increases is appropriate.
Key MoversThe British Pound was over 5% down versus the US dollar in the Asian session and hit a new record low between 1.0300 and 1.0350. In the Asian session, there was probably a liquidity issue, with high volumes moving the GBPUSD down by over 5%.
The British Pound got some help in the North American trading session when Bank of England (BoE) Governor Andrew Bailey said that the bank is monitoring developments in financial markets and is closely watching the FX market. The BoE said it wouldn’t hesitate to change interest rates by as much as needed to return inflation to the 2% target. The BoE also said it would fully assess the government’s budget plans and the British Pound's latest slump at its next meeting in November.
Today is a terrible day for UK assets, which coincidentally matches hawkish expectations for the BoE.
According to Bloomberg's “world interest rate probability”, the Bank of England may increase rates by ~ 150 bps in their November 3rd meeting.
In Europe, Giorgia Meloni won yesterday's Italian election, as was widely expected. It is difficult to say how much of the EURUSD move to the downside towards a new record low of 0.9554 is from the British Pound selloff and how much is related to the election results in Italy.
- EUR/CAD: 1.3155 - 1.3216 ▼
- GBP/CAD: 1.4643 - 1.4816 ▲
- AUD/CAD: 0.8817 - 0.8888 ▼
- USD/CAD: 1.3644 - 1.3769 ▼