Forex today: Minimal uptake on the FOMC minutes as expected, eyes turn back to Powell and yield curve

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  • Post FOMC, DXY firming to 98.33 and the US 2-year Treasury yields rising from 1.53% to 1.57%.
  • Canadian Consumer Price Index surprised to the upside but did very little to support the CAD.

Forex today was centred around the Federal Reserve Open Market Committee’s minutes from the July meeting, but it was a bit of a letdown, revealing much of what the markets had already priced in – Consequently, there was minimal uptake on the event which turns the spotlight onto the weekend’s Jackson Hole and Federal Reserve Chairman, Powell. 

There was a slight rise in the dollar with US yields firming with the FOMC minutes showing that “most” members viewed the rate cut as a mid-cycle adjustment – There are fewer bets of a 25 basis point back to back rate cut in September which is pressuring the yield curve yet again and depending on Powell, it could spark another bout of risk-of – According to analysts at Westpac, the markets are now pricing 28bp of easing (in comparison to other months factored over a terminal rate of 1.02%)  at the 19 September Fed meeting.

Elsewhere, we have seen President Trump reversing his view on cutting taxes on payrolls, saying that the strong economy didn’t need the support, which is more in tune with his persistent bullishness and tweets aimed at supporting the stock markets. Trump also tweeted frustrations over the Fed once again.

On the data front, US July existing home sales firmed and Canadian Consumer Price Index surprised to the upside but did very little to sustain the CAD at the lowest levels post the data, (1.3306-1.3250 and back to 1.3298), as investors remain concerned over trade wars and the FOMC minutes failed to support certain rate cuts. In fact, in recent trade, the news that is crossing the wires is that the Canadian Senators have called for a special meeting with BOC’s Poloz to discuss trade uncertainties.

Currency and money markets

All in all, it was a rather subdued day overnight with the DXY firming to 98.33 and the US 2-year Treasury yields rising from 1.53% to 1.57% with less responsive 10-year yield that remained between 1.55% and 1.60%.

As for the action in the currencies, analysts at Westpac summed it up as follows:

  • EUR/USD ranged sideways until the Fed minutes, later slipping from 1.1105 to 1.1080. 
  • USD/JPY rose from 106.25 to 106.60 over the day, with 15-20 pips of that on the FOMC minutes. 
  • AUD/USD round-tripped from 0.6775/80 to 0.6799 and back. 
  • NZD slipped from 0.6420 to 0.6395. 
  • AUD/NZD extended a multi-week rally from 1.0580 to 1.0602 – the highest since early June.

Key notes from Wall Street:

  • Wall Street finishes in the green, DJIA 240 points up post FOMC

 

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