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USD continues to rebound, Bank of Canada in focus

Vantage Updated Updated Tue, 2023 December 5 10:43
USD continues to rebound, Bank of Canada in focus

Headlines

* US JOLTS job openings miss estimates, come in at 2-year low, boost rate cuts

* Gold fall again, now 6% off Monday’s all-time spike high

* USD extends gains, DXY near its 20-day SMA

* Bitcoin surges up to $44,000, WTI crude oil falls to 5-month lows

FX: USDs rebound continued for a second day this week, off the 200-day SMA at 103.57. The next upside level is a major Fib level of summer rally at 104.38. The 10-year Treasury yield fell to a new low below 4.19%. US job openings data showed a surprise fall, while the ISM Services surprised to the upside.

EUR fell for a fifth straight day, and through the 200-day SMA at 1.0819. The next support level is at 1.0764. Dovish comments from a well-known ECB hawk were significant. Schnabel noted that the “remarkable” drop in core inflation made more hikes unlikely. Nearly 150bps of ECB cuts are now priced in for 2024.

GBP might be breaking down after tracking sideways between 1.26 and 1.27 over the last few sessions. Support/resistance is the 50% retracement of the summer drop at 1.2589.

USD/JPY traded in a narrow range. Yields drifted which helped underpin support for the yen. November’s Tokyo CPI figures missed estimates with the headline being the lowest since July 2022. Core also eased in line with the BoJ’s outlook.

AUD tumbled over 1% as the RBA held rates steady but with a mildly dovish stance. The bank noted moderating inflation and limited expectations for substantial wage growth. The major is through the 200-day SMA at 0.6577. Next support is 0.6510.

Stocks: US equities were choppy with intraday peaks after the open. The S&P 500 lost 0.06% to settle at 4567. The tech-dominated Nasdaq 100 finished 0.24% higher at 15,877. The Dow edged 0.22% lower to close at 36,124. The bank of America CEO said the economy is slowing but the outlook is still positive. He went on, “consumer spending has “levelled out” so that’s all good news that the economy has normalised”.

Asian futures are in the green. APAC stocks were choppy on Tuesday but generally took the negative lead from Wall Street. The ASX 200 was led lower again by gold miners after the metal faded further from the all-time spike high. Sentiment was not helped by soft data nor the modestly more less hawkish RBA.

Gold turned lower again after the big sell-off on Monday. The dollar was slightly better bid while yields slid.

Day Ahead Australia GDP, Bank of Canada Meeting

Australia Q3 GDP is seen at 0.4%, unchanged from the prior quarter. Tepid growth is due to still relatively high inflation and interest rates. These are acting as a strong headwind with domestic demand growth likely cooling. Economists say consumer spending is forecast to tick higher, boosted by the Matildas, but the outlook remains downbeat.  

The Bank of Canada is likely to keep rates on hold at 5% at its statement-only meeting. Economic challenges are intensifying with the job market cooling, the unemployment rate trending higher and inflation continuing to slow. There is also an ongoing dovish repricing of Fed rate expectations. That might mean a modestly softer hawkish tone from policymakers, primarily due to small risks to the disinflation outlook. There is no press conference so markets will react to the statement tone and wording.

Chart of the Day USD/CAD bounces off support

Markets are pricing in over 100bps of rate cuts next year in Canada. A more hawkish hold than expected would upset these bets. But the loonie may continue to lag other commodity currencies in the months ahead as its correlation to softening US data should continue.

USD/CAD has rebounded off the 200-day SMA at 1.3515 and the midpoint of the summer rally at 1.3495. Oversold conditions are easing with the next upside level at 1.3590.