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USD gains as US fixed income yields surge

Posted on: September 27, 2017

USD strength was the theme yesterday and that has continued overnight and into early trading this morning. The combination of a more hawkish than expected speech by Janet Yellen of the US Fed and rumors of the contents of Republican tax reform are causing the USD to catch a bid. The grind lower in EURUSD continues as positions are cleaned out, while USDJPY has extended above 113 in early trading this morning.

The key events today will be the Poloz speech at 9:45am MST and the unveiling of the Trump tax plan this afternoon. As usual, Trump suggested that law makers should expect “a very, very powerful document” that would cut taxes for middle class Americans. Rumors of the corporate tax rate being set at 20% from 35% with an increase in deductions and streamlining the number of individual tax brackets from 7 to 3 has participants optimistic, causing US yields to rip higher.

For USDCAD we still remain near some key technical levels. Yesterday’s surprise comments from Finance Minister Morneau in an interview with Bloomberg that were very bullish on the Canadian economy caused CAD to rally. However overnight CAD was caught up in the broad USD move higher and is currently sitting just below 1.2400 again. Poloz will drive the bus today with his speech on data dependence so it is important to be nimble. A combination of him talking down CAD a bit and a strong effort by the White House on tax reform could certainly squeeze USDCAD right through resistance around 1.2440/50 opening up a run at a 1.25 handle as CAD longs are close to the YTD high. If he comes out and echoes Minister Morneau’s comments expect to see USDCAD find a 1.22 handle very quickly.

 

  • Yesterday's NA 1.2331 - 1.2413
  • Asia 1.2341 - 1.2376
  • London 1.2369 - 1.2413

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