The Canadian dollar rose 0.17 percent versus the greenback on Thursday as NY Fed Chief John Williams made it clear that not only would the Fed cut in the near term, it could take a proactive deeper reduction of the Fed’s fund rate when it the FOMC meets at the end of the month.
Oil prices fell as Gulf of Mexico operations are getting back online into an oversupplied market. Easing tensions between the US and Iran have removed the risk premium to crude prices. Supply and demand indicators will be key as geopolitical issues move to the background.
The US dollar is lower across the board against major pairs on Thursday despite a rebound in manufacturing in the US. The Philly Fed business index jumped to 21.8. Fed speakers once again put downward pressure on the currency. This time it was the turn of NY Fed President John Williams. The NY Fed Chief advocated for preventative measure and by suggesting multiple rate cuts could act as vaccination against future risk.
Williams’ remarks put probabilities of multiple rate cuts higher after strong economic indicators had put doubts on the number of rate reductions this year and how deep the cut will be. The market anticipates at least a 25 basis points at the end of the July FOMC but after the comments from the policymaker the probabilities of a deeper rate cut have risen.
OIL – Strong Dollar and Middle Eastern Tensions Easing Puts Pressure on Crude
Oil prices fell more than 2 percent on Thursday despite a news report on Iran seizing a foreign tanker on suspicions of oil smuggling. Middle East tension has been one of the biggest drivers of crude pricing and yesterday’s news about US Senator Paul Rand to be in charge of negotiations made investor’s concerns ease.
Less geopolitical risk pressure on crude prices gave way to supply and demand fundamentals. Another weekly drawdown of inventories in the US and surprise build-ups in gasoline and distillates added to the oversupply narrative.
With the OPEC and the EIA lowering their demand forecasts for 2020 oil prices face supply gut pressures, while the OPEC+ deal was extended it cannot do more thank add stability, even in a spiralling down of crude pricing.
If the US-Iran negotiations are on the right track, crude could experience another round of selling in combination with a stronger dollar after the massive rebound in US manufacturing after the Philly Fed index jumped to 21.8 a one year high.
The dollar still has to face pressure from an upcoming interest rate cut from the Fed, but in the meantime the currency will be sensitive to over performing indicators.
GOLD – Gold Higher After Fed Limits Dollar Upside
Gold is ascending towards the $1,440 price level as the US dollar is trading lower against most major pairs on Thursday. The Dollar got a boost from better than expected manufacturing data from the Philadelphia Fed survey, but the currency is shackled by the upcoming interest rate cut by the Fed at the end of July.
A seized Iran tanker did little to support crude prices, but ongoing uncertainty in the Middle East makes gold attractive as a safe haven, especially with the US dollar.
Lower interest rates globally will keep gold bid as central banks around the world are ready or have already cut rates to record lows this month. More is needed, so there is the expectation of creative use of monetary policy. The biggest spotlight is on the Fed and questions remains on how deep they will cut to add stimulus to the US economy.
STOCKS – Netflix and Microsoft Show Two Sides of Tech Sector
US stocks had a strong finish to the North American trading session and after hour earnings combined with the comments from NY Fed Chair Williams to pave the way for equities to keep going higher.
Earnings season has brought mixed results as expected given the negative impact of the prolonged trade war. Netflix was the big miss of the day, as subscribers are growing at a lower rate ahead of a more diverse offering from competitors this year.
Microsoft was on the other spectrum in the tech sector. The software giant scored a 12% revenue gain as CEO Satya Nadella continues to grow the cloud business.
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