The Morning Update

The USD remains firm, oil prices slip, equity markets and US yields are mixed on Fed speak. The USD hits 11-month highs, oil prices slip below $90pb, European equities near 6-month lows, and US yields hold near 16-year highs on hawkish Fed comments. US Fed Reserve officials continue their rhetoric for the need for rates to stay restrictive for "some time" to tackle high inflation levels and bring them back to the Fed's 2% target. Fed leader Mester said, "I suspect we may need to raise the Fed funds rate once more this year and to hold it there for some time as we accumulate more information on economic developments and assess the effects of the tightening in financial conditions that have already occurred." In Australia, the RBA kept interest rates on hold, Asian markets were quiet with the China Golden Week holidays, while the US sees a light economic docket today with just the US Jolts Job Openings for investors to focus on today.

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In other news. India tells Canada to withdraw dozens of diplomatic staff. Rep Gaetz on Monday moved to oust Rep McCarthy as House Speaker. The US warned China to expect updated export curbs in October-US official. In China, Evergrande shares volatile as trade resumes amid chairman probe. Brussels to unfreeze Hungary funds as it seeks help for Ukraine. Meta to charge users in the EU for ad-free Instagram and Facebook. The largest Dutch shipbuilder sues the government over Russian sanction losses. Russian oil exports to India bounced back strongly in September.

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In currency news. As the JPY tests 150.00 vs. USD, the Japanese finance minister says, not yen levels, key to intervention. The USD extends gains on ongoing hawkish Fed comments. AUD down after the RBA kept interest rates on hold for a 4th meeting. Taiwan's central bank sold a net of $880 mln to intervene in the forex market in H1/23. CNY firms 0.15%, while Asian currencies on average weaken 0.1% on average vs. USD. Trading currencies mixed with AUD & NZD tumbling 0.8%, CHF & ZAR weaken 0.35%, SEK & NOK slip 0.15% while JPY is flat and MXN firms 0.2% vs USD.

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In commodity markets. Oil prices inch up 0.1% - Natural Gas and Gold prices dip 0.25% - Silver falls 0.5% - Copper slips 0.15% - Wheat firms 0.4% - Soybean falls 0.5%.

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CAD continues to weaken vs. USD on the combination of ongoing hawkish Fed comments, the prospect of BoC keeping its rates on hold, and oil prices dropping below $90pb. The loonie has weakened by 1% since Monday, retesting fresh 6-month lows and has opened the prospect of further weakness towards 1.3804 (March 24th,23). CAD has no economic data releases until Friday unemployment data, so the CAD will remain at the mercy of US data releases and Fed policymaker comments to provide intraday direction.

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EURCAD strengthens as falling oil prices increase the CAD's weakness against its peers.

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EUR bounces off near 2023 lows but the single currency is capped at 1.0500 vs. USD. Euro bounces off 1.0460, year-to-date lows as a modest positive shift in risk sentiment helped provide some intraday relief for the single currency. There were no economic data releases from the EU, and with a light US economic docket, we expect investors to be focused on Fed President Bostic's comments on the economic outlook and inflation to provide intraday direction. Our bias remains bearish on Euro and we continue to see the opportunity of Euro retesting 1.0380 next.

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GBPEUR weakens to retest 1.1500 investors continue to increase their bearish outlook on the pound as recession fears continue to rise.

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GBP continues under selling pressure, testing near 7-month lows ahead of the US jobs data. The pound continues under selling pressure on the combination of continuing hawkish Fed rhetoric, while domestically ongoing labor disputes, the impact of high-interest rates, and stalling growth are expected to push the UK into a recession in Q4/23. Intraday US jolts data and more Fed speak is not expected to bring any relief for the GBP. We remain bearish on the pound and see the potential for a retest of 1.1802 (March 08.23) vs. USD.