– Canada economic growth expected to be negative
– US stock futures higher on slumping Treasury yields
– US dollar ends July with losses
USDCAD Snapshot open 1.2835-396, overnight range 1.2791-1.2846, close 1.2806, WTI oil $98.54 Gold $1760.31
The Canadian dollar continues to consolidate gains but is struggling to break above resistance, despite rising U.S. equity futures, firm oil prices, and broad based U.S. dollar selling pressure.
It is month end, and portfolio managers are selling U.S. dollars to rebalance their portfolios. The S&P 500 is poised to finish the month with an impressive 7.0% gain.
Yesterday’s release of the first reading of U.S. Q2 GDP data accelerated the greenback’s sell-off as it gave bond traders an incentive to buy bonds, driving Treasury yields lower. The drop in Treasury yields bolstered risk sentiment, and Wall Street rallied.
US Q2 GDP shrank 0.9% compared to expectations of a 0.5% increase. Even worse, the second consecutive quarter with negative growth and too many economists mean the U.S. economy is in a technical recession.
Fed Chair Jerome Powell, Treasury Secretary Janet Yellen, and President Biden do not agree. Mr Powell says the economy is not in a recession. “I do not think the U.S. is currently in a recession, and the reason is there are too many areas of the economy that are performing too well.” Treasury Secretary Janet Yellen said, “a recession is a broad weakening of our economy, and that is not what we are seeing right now.”
President Biden echoed their sentiments.
However, bond traders are focused on Mr Powell’s comments from his post-FOMC press conference. He said the fed funds rate was in line with estimates of the neutral rate, which is when the Fed’s policy rate is considered neither accommodative nor restrictive. They believe the Fed will quickly reduce rates at the first sign inflation is falling to avoid a recession.
The U.S. 10-year yield dropped to 2.681% from 2.83% in the wake of the GDP report which helped turn risk sentiment positive.
Canada’s May GDP will not have anything close to the impact of the U.S. data. May GDP is expected to fall0.2% compared to a 0.3% increase in April. Month end flows will overshadow the results.
EURUSD traded in a 1.0187-1.0254 range is trading at 1.0203 in N.Y. Eurozone inflation rose 8.9% y/y, and which provided some support.
GBPUSD bounced in a 1.2139-1.2244 range bolstered by broad U.S. dollar weakness, although ongoing U.K. domestic issues limit gains.
Today’s U.S. data includes Fed favourite Core Personal Consumption and Expenditures Index (PCI) along with the Michigan Consumer Sentiment Index and Chicago Purchasing Managers Index.