Morning Minutes

US Dollar Rallies as Australia Goes Hawkish



Continuing a trend of recent hawkish moves by central banks in Canada and New Zealand, the Reserve Bank of Australia announced overnight that it is ending its yield curve control program, which previously had frozen 0-3 year rates at 0.10%, allowing short term traded interest rates to start rising. Although the RBA indicated that it is continuing asset purchases at the current rate through at least February, this appears to be a first step toward normalizing monetary policy.

The largest immediate impact of the RBA decision on markets, interestingly, has been to ignite a rally in the US Dollar. It appears that the RBA and Bank of Canada moves of the last few days have cleared the runway and given cover for the Fed to announce or hint at stimulus reductions tomorrow likely starting with tapering asset purchases. The greenback is up 0.8% against the Aussie Dollar, interestingly, up 0.3% against the Pound and the Loonie, and up 0.1% against gold and the Euro. The US Dollar rally has also knocked commodity prices back with copper down 0.4% and WTI crude oil down 0.8%.

Stock markets are mixed today as investors assess yesterday’s US mixed economic news and await tomorrow’s Fed meeting and Thursday’s Bank of England meeting. More signs of stagflation appeared in the US yesterday with worse than feared US construction spending (-0.5% vs street 0.4%) and US ISM new orders (59.8 vs street 66.9 and previous 66.7) suggesting a sluggish or slowing economy while a bigger than expected jump in US ISM prices paid (85.7 vs street 78.4), confirmed rising inflation pressures. Today is light for economic numbers but tomorrow brings Service PMI reports from around the world and US ADP payrolls (street 400K vs previous 568K).

It’s another big day for earnings on both sides of the border. Canadian highlights include Nutrien ($1.38 vs street $1.23) beating the street and Air Canada reported continued losses and struggles despite a rebound in revenues. In Q3, the airline noted its capacity was up 87% from 2020 but still down 66% from the same quarter in 2019.

Highlights of US earnings reports today include Pfizer ($1.34 vs street $1.09), DuPont ($1.15 vs street $1.12), and Under Armor ($0.31 vs street $0.15, up 10.1% premarket). Companies scheduled to report results later today include Ovintiv, Prudential, and Lyft.     

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Colin Cieszynski, Chief Market Strategist

Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

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