Powell Returns to Capitol Hill as Interest Rate Cut Pressures Mount

Overview:

• The greenback under pressure after pressure to cut rates mount

• The Canadian dollar strengthened on the back of strong oil prices and hawkish hold by the Bank of Canada

• WTI Crude oil prices increase $1.30 to trade near two-month high                      

Highlight:        

The Canadian dollar is a star performer so far this week. CAD bulls are out of the woods after the Bank of Canada delivered a hawkish hold decision. Despite ongoing trade tensions, the Bank sees the economy performing much better in the second half of the year. The labour market is strong and should translate into higher consumer expenditure. South of the border, the Federal Reserve is weighing on a more   accommodative policy. USDCAD is expected to trade with a negative bias as the market assesses the new developments.  

US DOLLAR

The greenback took a tumble after Fed Chair Powell telegraphed to the markets that FOMC is leaving the door ajar for an “insurance cut” following the re-emergence of “crosscurrents”. Powell returns for his second day of testimony today.

He is likely to replay the same tune: business investments are slowing down, and “apparent progress on trade” is generating far more uncertainty. The Dollar Index is down 0.3% with the British Pound rebounding from the 2019 low. Commodity-linked currencies are also trading firmer on the back of strong crude oil price. WTI futures are extending its gains, north of $61 a barrel due to supply concerns.  

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BRITISH POUND

Dovish words from Powell gave market participants an excuse to help the pound rebound from multi-month lows. The Fed seemed to leave the door ajar for rate cuts amidst trade-war led uncertainty. GBP/USD is up 0.45% this morning but further gains are expected to be capped. The Bank of England believes the “likelihood of a no-deal Brexit has increased since the start of the year” in its latest Financial Stability Report.  The Pound and local asset prices are expected to remain volatile.  

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EURO

EUR/USD is holding onto overnight gains, trading close to the 1.13 post, after Powell signaled that the Fed may for go for an insurance cut at its next meeting. Investors now wait for more hints from the Fed before taking on any directional bets. Meanwhile, final inflation data from Germany and France failed to inspire euro bulls. The pair is expected to trade inside the previous month’s range.  

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CANADIAN DOLLAR

USD/CAD crashed to its lowest level since Sept 2018 on the back of a rather dovish assessment Fed Powell. The greenback is under broad-based selling pressure, and a pick-up in oil prices is also pushing the CAD higher. The Bank of Canada, meanwhile, delivered a no-change decision and is expecting the Canadian economy to grow at a healthier pace in H2. The pair is expected to explore lower boundaries as USD selling pressure accentuates.  

View USD/CAD Chart ►

AUSTRALIAN DOLLAR

The Aussie dollar is climbing back towards the 0.70 mark ahead of US June CPI numbers. It currently sits at 0.69819. Analysts see the AUD climbing over the 0.70 hurdle, yet there is a possibility for it to be dragged back down on strong US CPI numbers.  

View AUD/GBP Chart ►

FEATURED CURRENCY

The deluge of poor data continues to pour out of Japan indicating the economy could be caught in a deeper slowdown. The Tertiary Industry Activity Index declined 0.2%, lower than market estimates of minus 0.1%. However, with the greenback coming under intense selling pressure in the overnight session, USD/JPY is expected to continue to trade with a negative bias.      

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