Analysts at TD Securities explained that North American markets traded with a positive tone, with equities recovering from Wednesday’sselloff (SPX: +0.7%, TSX: +0.5%) on reports that the US and China are ready to re-engage on trade talks.
Key Quotes:
“Treasuries bear-flattened across the belly and long-end while Canadian rates rallied to widen CAD-US spreads by ~2bps.”
“The USD was mixed on Thursday with antipodeans leading G10 currencies.”
“AUD (0.3%) rallied on an unexpected drop in the unemployment rate while EUR (+0.2%) briefly traded above 1.14 before retreating for a modest 0.2% gain. Meanwhile, JPY (-0.1%) was weighed down by the recovery in risk sentiment.”
“We turn to the RBA’s semi-annual testimony while the main event risk in North America is Canadian CPI.”
“CAD continues to look vulnerable on the cross. A tactical EUR/CAD topside push remains appealing as the EUR looks deeply oversold. In this regard, a stabilization in risk sentiment may benefit the EUR more than the CAD given price action/bearish sentiment in the common currency.”
“CPI data will be a noteworthy event and introduce volatility into the CAD. Signs of underlying inflation marking a peak for Canada may extend the squeeze in EUR/CAD towards 1.52. A move through 1.32 in USDCAD could exacerbate positioning realignment risks.”
“Treasuries are keeping a close eye on EM sentiment for direction, but choppy price action is likely to continue. We continue to look for 5s30s to keep flattening from recent highs.”
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