Canadian Dollar Holds Steady Amid Trudeau Exit Speculation

Image Credit: Reuters

Here's a look at the day ahead in European and global markets from Wayne Cole.

Asian markets have been relatively directionless, briefly stirred by reports that Canadian Prime Minister Justin Trudeau may announce his resignation as early as today.

The muted market reaction suggests the news was largely anticipated, with investors potentially viewing the prospect of an early election as a chance to clarify the political landscape. This nudged the U.S. dollar down 0.3% to 1.4404 Canadian. 

The dollar also dipped slightly against other major currencies but remained supported by rising Treasury yields. The 10-year yield is nearing its recent eight-month high of 4.641%.

A break above that level would target the 2024 peak of 4.739%, further pressuring equity valuations. While the S&P 500 delivered a 25% return last year, nearly half of those gains came from just five stocks, underscoring the narrow base of the rally.

Japanese bond yields climbed to 1.121%, their highest level since 2011, as markets anticipate a Bank of Japan rate hike, though likely not this month. However, the yen remains under pressure as U.S. Treasury yields rise faster, maintaining a 351-basis-point spread in favor of the dollar. In contrast, Chinese yields continue to hit record lows, with the yuan sliding to a 16-month low of 7.3286 per dollar.

Dollar strength will be tested by several Federal Reserve speakers this week, with investors focusing on Fed Governor Christopher Waller's remarks on Wednesday.

Markets are looking for signs the Fed will remain cautious about further rate cuts. Additionally, Monday's service PMI readings are expected to highlight U.S. economic resilience, though a potential upside surprise in German CPI data could lend support to the euro.

The week's main event is Friday’s U.S. payrolls report, a crucial gauge for economic growth and earnings. Markets are hoping for job gains robust enough to signal growth, but not so strong as to complicate the Fed’s rate-cutting path.

Median forecasts point to 150,000 new jobs and an unemployment rate of 4.2%, though seasonal factors might reduce job growth by about 50,000. There’s also a possibility the jobless rate could edge up to 4.3%, given November's rate was 4.246%. 

Adding another layer of complexity, annual revisions to seasonal factors in the household survey could lower unemployment rates for previous months.

 

 

 

 

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author.