FX & market recap:
Yesterday, Fed Chair Jerome Powell announced that the Fed would scrap its 2.0% inflation goal and replace it with an Average Inflation Target rate of 2.0%. In layman’s terms it means “we can’t hit the bullseye, so just hitting anywhere on the dart board is okay.” According to the Fed, “following periods when inflation has been running below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.” That decision won’t be based on a mathematical formula that defines average, which gives policymakers a lot of flexibility.
Asia equity markets closed on a mixed note despite China’s shanghai Shenzhen 300 index climbing 2.39%. European stock market indexes are trading lower on the back of somewhat disappointing German and Euro area Consumer confidence reports. Broad US dollar weakness and the thoughts of low US rates for a long, long time lifted gold prices. Oil prices were steady.
Canadian dollar highlights:
USD/CAD joined the greenback-dumping party, with losses fueled by portfolio managers needing Canadian dollars for month-end. It is hard to believe that USD/CAD losses will be sustained. Canadian interest rates are not going anywhere soon, and certainly not higher.
The Canadian economy looks vulnerable. The energy industry is decimated thanks to the steep drop in crude prices, a lack of distribution capability, and anti-oil federal government policies.
The US appears to have put the USMCA agreement on trade into the White House out house.
Traders will be reminded about the decimation of the Canadian economy when Q2 GDP is released today.
EUR/USD climbed in Asia and peaked in Europe at 1.1919. News German Consumer Confidence fell 1.8% (forecast 1.2%) knocked the single currency to 1.1890 at the New York open. Prices since bounced to 1.1903. EUR/USD is struggling to rally in part because the market is already very long.
British pound highlights:
GBP/USD surged, rising from 1.3188 to 1.3295 with month-end GBP demand playing a role. Prices are also supported by broad US dollar weakness, while “no-deal Brexit” risks are ignored. Traders will be looking ahead to BoE Governor Bailey’s speech this morning.
Asia Pacific highlights:
USD/JPY dropped following Prime Minister Shinto Abe’s resignation announcement. He said it was for health reasons but plans to hang around until his successor is chosen. USD/JPY plunged from 106.94 to 105.38 in NY alongside broad US dollar weakness following Powell’s comments.