– European banking fears spark flood to safe-havens.
– EURUSD plummets despite firmer PMI data,
– US dollar rallies across the board overnight except against yen.
USDCAD snapshot open 1.3772-76, overnight range 1.3711-89, close 1.3715, WTI $67.53, Gold $1995.45
The Canadian dollar accelerated lower overnight as it was caught up in a wave of safe-haven demand for US dollars.
USDCAD tested key support in the 1.3630-40 area yesterday but it held and the currency pair quickly reversed course, rallying to 1.3715 at the close. The rally continued overnight, thanks to fears about the health of the European banking sector, with USDCAD hitting 1.3789 in early NY.
The Canadian dollar weakness was exacerbated by the drop in WTI oil prices from $71.63/barrel on Thursday to $66.65/b today. The 7.0% drop occurred because of broad US dollar strength due to increasing risk aversion and profit-taking ahead of the weekend. Even at $66.85/b, WTI is still 7% higher than it was on Monday.
The European banking sector is under assault, which is a direct consequent of the Swiss government decision to upset the hierarchy of creditor rankings with its Credit Suisse Bank actions.
The Swiss banking regulator FINMA and Swiss National Bank, along with government officials coerced UBS into buying troubled Credit Suisse. As part of the plan they authorities decided to pay shareholders rather than owners of AT-1 bonds. The AT-1 bonds or CoCo’s are contingent convertible bonds which were created after the Financial Crisis to help shore up troubled banks.
When the Swiss authorities decided to wipe out the AT-1 bond holders in favour of shareholders, investors were spooked. Credit default swaps, which are derivatives invented to help insure against a credit collapse, soared in the wake of the Swiss decision about AT-1 bonds.
German’s Deutsche Bank shares plunged, knocking European bourses lower and sparking a stampeded into safe-haven assets.
The US 10-year Treasury yield dropped to 3.291% from 3.62% a couple of days ago and S&P 500 futures are down 0.88%.
EURUSD is trading at the bottom of its overnight 1.0715-1.0838 range due to elevated risk aversion fears. Better than expected Eurozone PMI data was ignored.
GBPUSD is tracking EURUSD moves and is adding at 1.3192 after dropping from 1.2292. UK PMI reports were weaker than expected, which also weighed on the currency.
USDJPY fell to 129.65 from 130.93, before inching higher to 130.00 in NY.
AUDUSD traded negatively in a 0.6627-0.6693 range. Australia’s Manufacturing and Services PMI reports were weaker than expected.
Today’s data includes US Durable Goods orders and Canadian retail sales.