The U.S. dollar rallied on Monday against some but not all of the major currencies.  Our readers should not find the rally in USD/JPY or decline in EUR/USD surprising because we talked about how a soft jobs report changes nothing for U.S. policymakers on Friday who are laser focused on inflation. Ten year Treasury yields recovered nearly all of Friday’s losses with the Dow Jones Industrial Average rising more than 600 points.  We have now entered the pre-FOMC quiet period and barring any negative Omicron news, Friday’s consumer price report will be the only market moving news on the calendar this week but even that may not trigger big moves in currencies. Fed Chairman Powell made it very clear that high inflation needs to be addressed with faster taper – an announcement they are widely expected to make next week. There’s a very good chance Friday’s CPI report will reinforce their more aggressive intentions.
 
Meanwhile one of the best performing currencies today was the Australian dollar. AUDUSD dropped below 70 cents before rebounding to end the day near .7050.  With a Reserve Bank monetary policy announcement this evening, today’s move can be attributed to short covering and a hint of optimism. The RBA is not expected to change policy as they’ve made it very clear that rates will remain unchanged throughout 2022, but they could lift their growth and inflation forecasts.  Thanks to fewer restrictions, the economy is recovering. Job ads surged 7.4% last month with firms ramping up spending plans.  So far, Omicron has not had a significant impact on the economy but minimally, the travel industry will be affected. China is the country’s largest inbound tourist market and provides a $12 billion contribution to the economy.
 
The worst performing currency was euro. Not only are coronavirus cases rising across the continent but European nations respond more quicky with lockdowns and restrictions. As evidenced by the latest factory orders report, the Eurozone economy is underperforming the U.S. Factory orders plunged -6.9% in the month of October, which was much weaker than anticipated and foreshadows downside suprises in tomorrow’s German industrial production and ZEW survey. 
 
Then second best performing currency was the Canadian dollar which shot higher on the back of rising oil prices. Crude jumped 5% to just under $70 a barrel.  This recovery along with Friday’s strong labor market report are some of the many reasons why the Bank of Canada is expected to remain hawkish this week. Tomorrow’s Canadian IVEY PMI and trade balance reports are expected to reinforce the strength of Canada’s economy and the gains in loonie.  Further losses are likely in USD/CAD – which has formed a triple top on the daily chart. The improvement in risk appetite also drove sterling and the New Zealand dollars higher. 

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