Good morning. After a few days of furious moves surrounding the OPEC summit, Italian referendum and Austrian election, markets are taking a breather this Tuesday morning. It was a fairly quiet overnight session as both Asian and European equities tread water with more event risk lying in the second half of the week. The Reserve Bank of Australia held their headline rate firm at 1.5%, citing a resurgent commodity market as one important factor which could pick up domestic growth. An important week for central bank meetings continues tomorrow with the Bank of Canada and concludes on Thursday with a hotly anticipated ECB meeting. Crude prices have actually dipped lower today, allowing the big dollar to recover some of Monday’s heavy losses.
The euro jumped three percent on Monday, erasing Sunday’s Italian Referendum imposed losses. On Monday, markets learned that PM Matteo Renzi would keep his resignation on ice until after the budget gets passed. The single currency slid lower during this morning’s European session, paced by second tier data releases. EUR/GBP selling gave sterling a boost even as the UK High Court continues to hold Brexit proceedings, which are not expected to yield any results until after the new year. As reported above, the RBA announced policy would remain steady down under. The Australian dollar is about 0.2% lower as North American kicks off, weighed down by oil prices.
As previously reported, the greenback was under assault for much of Monday to begin the new trading week. Even as US equity markets opened and produced new all-time highs, the US dollar continued its recent turnaround, falling relative to most major currencies. St. Louis Federal Reserve President James Bullard spoke on Monday, commenting that President-Elect Trump’s policies could have a profound impact if they focus on productivity. Mr. Bullard has long viewed the US economy as being stuck in low-growth. ISM non-manufacturing PMI also scored a solid 57.2 print yesterday, besting expectations of 55.6. Unfortunately, the big dollar was not able to find more buying as it appears more likely the currency has finally topped out. Trade balance figures were just released, showing the US deficit ballooned to -$42.6 billion during the month of October.
The Canadian dollar enjoyed a solid Monday session, boosted with other risky currencies. Even as crude oil prices fell lower by a few percentage points, the loonie continued to mount a solid comeback at the big dollar’s expense, now more than four percent off the November lows. We are a little more than twenty-four hours away from the next Bank of Canada meeting. The central bank is expected to maintain current policy, keeping its headline interest rate at 0.5%. Even as economic growth hit +3.5% during the third quarter, Chairman Poloz and his colleagues will likely choose to stand pat and focus on what many perceive as overheating housing markets in Toronto and Vancouver. Although policymakers have left the door open to further easing in previous statements, it appears highly unlikely at this stage.
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