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The US 10-year real rate is a key driver of FXCM’s USDOLLAR. The two instruments have a robust positive correlation coefficient of 79%, with the USDOLLAR generally tracking the real rate.
Friday saw Canadian GDP print at -0.2% m/m compared with the previous number of 0.2% m/m. The manufacturing PMI also came in lower at 48 compared with the previous 49.6. At the same time, Canadian unemployment is drifting higher to 5.5%. In response, the Canadian 2-year note decline by 2.02% on Friday.
The pair returned to profits in August and hit 2023 highs last week, sustaining the upside bias after the US data dump, which reinforced market view that the Fed is done hiking
The pair got a boost on Wednesday from poor US jobs data, but slides today after Australian data, which showed that inflation decelerated further in July
USDOLLAR short-term analysis.
The pair tries to stop its six-week losing streak and defend the 200 Days EMA, but key upcoming data points can determine the next leg of the move
The US 10-year yield is trading near 4.25%, at levels last seen at the end of 2022. The underlying driver is a strong US economy and the sense that the Fed will leave rates “higher for longer.” The strong US-10 year is having an impact on the spread between the US and Canadian 10-year bonds.
The pair maintains its upside bias around the September 2022 interventions levels, after the Jackson Hole symposium speeches, awaiting key US economic data later in the week
Fed Chair Powell’s delivery at Jackson Hole had a hawkishness to it. He said that “although inflation has moved down from its peak…it remains too high.” This comes after the Fed’s 11 rate hikes since the beginning of 2022, which has the target range currently at 5.25%-5.5%. At face value, this seems restrictive, however labour markets are still tight, and GDP is still growing at a fair pace.
Watch today’s US Open for insights on the blowout results of AI pioneer Nvidia, poor EZ &UK PMIs and monetary policy outlook ahead of the Fed’s Jackson Hole Symposium
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