Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
US bonds show Bessent relief
The US dollar was mostly weaker on Monday as investors reacted to the mostly market-friendly announcement of Scott Bessent as nominee as president-elect Donald Trump’s Treasury Secretary.
The reaction to Bessent’s nomination was most obvious in the US bond market with US two-year bond yield dropping from 4.37% on Friday to 4.26% overnight.
The USD index was down 0.6% on Monday with the best gains seen as the euro rebounded from last week’s sell-off with the EUR/USD up 0.7%.
In Asia, the USD/JPY fell 0.4% while the USD/SGD and USD/CNH both eased moderately.
The NZD/USD gained 0.2% ahead of tomorrow’s Reserve Bank of New Zealand decision.
The Aussie bucked the trend, however, with losses in commodities weighing on the AUD, with the AUD/USD flat.
An easing in geopolitical tensions and sharp falls in last week’s purchasing manager indexes (PMIs), which sparked worries about a slowdown in global growth especially in Europe, hit commodities. WTI oil fell 3.1% overnight while gold lost 3.3%.
US PCE key for inflation worries
The big event for the week ahead will be Wednesday night’s personal consumption and expenditure number
We anticipate core PCE inflation in October to be 0.292% month over month, or 2.8% year over year, which is in line with the Fed’s prediction made public by a few Fed governors.
We anticipate slight downward core PCE inflation revisions of one basis point for August and September, respectively.
This forecast suggests the disinflation trend halted, as the three-month annualized core PCE inflation would reach 2.8%, the highest level since April 2024.
When energy and food costs are taken into account, headline PCE inflation probably increased from the September estimate, which we anticipate to be revised down to 0.169%, to 0.267% (0.3%) m-o-m in October.
Post US Treasury Secretary Bessent nomination, the dollar index has corrected from its recent two-year highs.
However, price action still indicates dollar index is in a bullish phase with the 50-day EMA above the 200-day EMA indicating positive price momentum.
Canada sales up, but USD/CAD resilient
After a significant drop in August, retail sales returned a robust 0.9% in last week’s release, excluding vehicles, in September, up 0.4% MoM as anticipated.
After two quarters of decline, goods consumption is expected to increase in Q3.
Given the impending two-month sales tax holiday and the disruption of some Canadians’ cheques in early 2025, spending may be higher than anticipated during the following six months.
But it’s important to remember that BoC officials have previously been anticipating an increase in consumption, so the actuality of higher spending shouldn’t necessarily alter their opinions that policy rates ought to be closer to neutral.
A 50bp decrease in December is still what we anticipate.
Technically speaking, USD/CAD sees next strong resistance at 1.40 key handle, and next support rests at its 50-day EMA 1.3834, where USD buyers may look to take advantage.
Euro climbs from lows after horror week
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 25 – 30 November
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
