Daily Market Update

 Dollar Stumbles; Aussie is the Biggest Gainer

December 06, 2022

The U.S. dollar is slightly weaker to start the day but remains in familiar ranges seen yesterday. 

Overview

The Bloomberg Dollar Spot Index is down 0.2%, with modest losses against all of its G10 foes except the Canadian dollar.There is no major economic data on today’s docket.  In addition, we have now entered the Fed’s pre-meeting “blackout” period, so there will be no Fed speakers ahead of the central bank’s December 14th meeting.  Fed futures have fully priced in a 50-basis point hike and only a 4.0% chance of a 75-point surprise.  Recent strong economic data, including rising wages, strong job growth, and better-than-expected PMIs, are potential headaches for the Fed.

 

What to Watch Today…

  • No major economic events are scheduled for today

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CAD ⇓

The Canadian dollar was the only G10 currency to lose ground against the U.S. dollar overnight, slipping 0.30%.  If the move holds, it would be the fourth straight day of losses for the loonie.  With a lack of data released in the U.S. and Canada, the move is likely mostly due to a drop in the price of oil.  WTI futures are down 1.3%.The Bank of Canada’s interest rate decision is tomorrow, and the decision could cause some fireworks.  A 25-basis point increase is already baked into the cake. However, Overnight Index Swaps show traders are putting the odds of a 50-basis point hike at 38%.  In short, a healthy number of market participants will be proven wrong, and volatility is all but assured.

 

AUD ⇑

The Australian dollar is half a percent higher than the U.S. dollar today.  As expected, the Reserve Bank of Australia hiked its key interest rate for the eighth consecutive month.  The RBA increased rates by 25 basis points to 3.1%, which is the highest level since November 2012.RBA Governor Philip Lowe said, “The board expects to increase interest rates further over the period ahead, but it is not a pre-set course.”.  The promise of future interest rate hikes was enough to send the Aussie higher and drag the New Zealand dollar along for the ride.

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