Canadian Loonie soars, BOC hikes 50 bps – US Dollar Index slides, bond yields rise

AUD, NZD, Climb; Euro Rebounds; JPY Dips, Wall Street Stocks Up.

Summary

The US Dollar tumbled against the Canadian Loonie (USD/CAD) to 1.3585 from 1.3655 after the Bank of Canada hiked interest rates by 50 bps to 4.25%, a level not seen since 2008.

The BOC decision was in line with market expectations. The Canadian central bank said that it will be considering whether the policy rate needs to rise further.

The Australian Dollar (AUD/USD) climbed to 0.6770 (0.6727) while the Kiwi (NZD/USD) settled 0.40% higher to 0.6377. An increase in risk appetite buoyed the resource currencies.

A popular gauge of the Greenback’s value against a basket of 6 major currencies, the Dollar Index (DXY) slid 0.35% to 104.78 from 105.15 yesterday. Wall Street stocks rose, weighing on the DXY.

The Euro (EUR/USD) rebounded to 1.0560 from 1.0512 with the ECB set to announce its interest rate decision next week. Waning expectations for an aggressive Fed rate increase also boosted the shared currency.

Sterling (GBP/USD) edged higher to 1.2245 (1.2213 yesterday) despite a drop in the UK House Price Diffusion Index (RICS House Price). The British currency benefitted from broad-based USD weakness.

Against the Japanese Yen though, the Greenback edged higher to 136.65 (136.45). Global bond yields rose with the benchmark US 10-year rate settling at 3.49% from 3.42% yesterday. Other global treasury yields were higher. Germany’s 10-year Bund yield was last at 1.81% (1.77%).

Economic data released yesterday saw Japanese Bank Lending (y/y) in November rise to 2.7% from previous 2.6%, higher than expectations at 2.2%. Japan’s Q3 GDP (q/q) rose to -0.2% from -0.3%.

UK RICS House Price Balance climbed to GBP 12.22 billion up from forecasts at GBP 12.10 billion.

Australia’s November Trade Surplus rose to AUD 12.22 billion against forecasts at AUD 12.10 billion.

US Weekly Unemployment Claims matched estimates at 230,000, up from a previous 226,000.

USD/CAD – The Greenback tumbled against the Canadian Loonie to 1.3561 overnight low from its opening at 1.3655 following the Bank of Canada’s rate decision and statement. While the rate increase was widely expected, a recovery in oil prices supported the Loonie. The US Dollar was last at 1.3585 Canadian.

(Source: Finlogix.com)

EUR/USD – The shared currency extended its rally against the US Dollar, finishing up 0.44% to 1.0560 (1.0512). Ahead of next week’s ECB interest rate meeting, the Euro benefitted from short covering. Overnight high traded was at 1.0565.

AUD/USD – The Aussie rallied on the back of the market’s risk on stance and overall weaker US Dollar. Overnight, the Aussie Battler soared to a high at 0.6781 from a 0.6727 open, settling in late New York to 0.6770. Overnight low traded was at 0.6698.

USD/ JPY – Against the Japanese Yen, the Greenback edged higher to 136.65 from 136.45 supported by a rise in bond yields. Overnight, the USD/JPY pair soared to a high at 137.24 before easing at the close. Overnight low traded was at 136.27.

On the lookout

Today’s economic data calendar picks up as we end the week.

New Zealand kicked off earlier with its NZ Annual Manufacturing Sales (y/y down to 3.1% from forecasts at 4.5% and a previous -4.9%). New Zealand’s Electronic Retail Card Spending (y/y) fell to 7.1% from a previous 16.6%, but up from forecasts at 5.1% - ACY Finlogix).

China follows with its November CPI (m/m f/c -0.2% from 0.1%; y/y f/c1.6% from 2.1% - ACY Finlogix), Chinese November PPI (y/y f/c -1.4% from -1.3% - ACY Finlogix).

The UK releases its Consumer Inflation Expectations (no f/c, previous was 4.9% - Forex Factory).

Canada kicks off North America with its Capacity Utilisation (f/c 82.2% from83.8% - ACY Finlogix).

The US rounds up today’s releases with its November Producer Price Index (PPI – m/m f/c 0.2% from 0%; y/y f/c 5.9% from 6.7% - ACY Finlogix), and finally the US Preliminary Michigan Consumer Sentiment (f/c 56.9 from 56.8 – ACY Finlogix).

Trading perspective

With little in the way of data, and following a busy week expect the US Dollar to be well supported today.

After climbing to 105.55 mid-week, the Dollar Index (DXY) slid under the weight of position adjustments to 104.77 yesterday.

We can expect support for the DXY at 104.55 to hold today with the likelihood of a further bounce to 105.10.

The benchmark US 10-year treasury bond yield outpaced its rivals, climbing 7 basis points to 3.49%. Germany’s 10-year Bund yield was up 4 basis points (to 1.81%) in contrast.

The UK 10-year Gilt rate was last at 1.81% from 1.77%, up 4 bps.

Traders will be focussed on the US Producer Price Index (PPI) released later today (12.30 am Saturday, Dec 10 Sydney).

The US CPI is scheduled for release next week.

EUR/USD – The Euro rallied to finish near its highs against the US Dollar at 1.0560. The overnight high traded was at 1.0565. In early Asia, the shared currency changes hands at 1.0555. For today, look for immediate resistance at 1.0565 followed by 1.0600 and 1.0630. On the downside, immediate support can be found at 1.0520, 1.0490 (overnight low traded was at 1.0489). Look for the Euro to trade a likely range today of 1.0500-1.0600. Sell rallies.

AUD/USD – The Aussie Battler benefitted from a rise in risk appetite and a broadly based weaker Greenback. AUD/USD closed at 0.6770 (0.6727 yesterday). Overnight high traded was at 0.6781. Currently the AUD/USD pair is steady at 0.6770. Look for immediate resistance at 0.6800 followed by 0.6830. Immediate support is found at 0.6740 and 0.6710. Look for the Aussie to consolidate in a likely range today of 0.6710-0.6810.

USD/JPY – Against the Yen, the Greenback climbed to 136.65 from yesterday’s 136.45. Overnight high traded was at 137.24. For today, look for immediate resistance at 136.95 and 137.15. On the downside, immediate support can be found at 136.30 (overnight low traded was at 136.27). The next support level is found at 136.00. Look for the USD/JPY pair to trade in a likely range today of 136.30-137.30. Trade the range, preference is to buy dips.

USD/CAD – The US Dollar tumbled against the Canadian Loonie to 1.3585 in late New York from its opening at 1.3655. While the Bank of Canada’s rate increase was in line with market expectations, hawkish rhetoric and a rally in resources buoyed the Loonie. The increase of 400 basis points in Canadian rates since March has supported the Canadian Dollar. On the day, look for immediate support at 1.3560 (overnight low traded was 1.3561). The next support level is found at 1.3530 and 1.3500. Immediate resistance is found at 1.3610 followed by 1.3640 and 1.3690 (overnight high traded was at 1.3689). Likely range today 1.3550-1.3650. Just trade the range shag on this puppy today.

Happy Friday and trading, and a top weekend to all.