Forexlive Americas FX news wrap 11 Dec: Bank of Canada cuts by 50bps. US CPI as expected.

• In-line CPI report leads to a blockbuster day for US stock markets
• What the market misunderstands about China
• Gold moves up to test swing level from last week of November. Crude oil higher as well.
• US November federal budget deficit 367B vs 353B expected
• BofA: What we expect from the November ECB meeting and the EUR reaction
• US sells 10-year notes at 4.235% as it stops through by 1.6 basis points
• European equity close: Solid gains but trail US stocks
• Bank of Canada Governor Macklem: Data since last rate decision has been mixed
• EIA weekly crude oil inventories -1425K vs -901K expected
• Bitcoin re-takes $100,000 with a 3% gain
• Bank of Canada interest rate statement and press conference opening statement
• Bank of Canada rate decision: 50 basis point rate cut
• US November CPI 2.7% y/y versus 2.7% expected
• Kickstart the trading day with a technical look at 3 major currency pairs
• OPEC once again makes cuts to its 2024 and 2025 oil demand growth forecasts
• ForexLive European FX news wrap: Dollar gains as China looks to reignite currency wars
• Gold’s Road to $3,000: Expert Analysis by Octa Broker
• US MBA mortgage applications w.e. 6 December +5.4% vs +2.8% prior

Markets:

• Gold up $23 or 0.86% at $2760 99
• WTI crude oil up $1.74 or 2.54% $70.33
• 2 year yield 4.1511%, up 0.2 basis points
• US 10-year yields 4.269% up 4.8 basis points. The rise comes despite a stellar note auction with the yield tailing by -1.7 bps, a bid to cover comfortably above the 6-month average at 2.70X vs 2.55X. The domestic demand was higher than the average and the international demand was righ on the average.

The US stock indices saw the Dow move lower, but the Nasdaq soaring by 1.77% to a new record and closed above 20K for the first time ever. The S&P traded above the high closing level near 6090, but backed off into the close.

• Dow fell -99.27 points or -0.22% at 44,148.56
• S&P 500 rose 49.28 points or 0.82% at 6084.19
• Nasdaq rose 347.65 points or 1.77% at 20,034.89
• Russell 2000 rose 11.38 points or 0.48% at 2,394.16

In the forex, the USD is higher vs all the major currencies with the exception of the CAD (USD fell -0.14%). The greenback rose the most vs the JPY (0.37%), the EUR (0.30%) and the NZD (0.24%).

The USD fell vs the CAD despite the Bank of Canada cutting rates by 50 basis points as expected to 3.25% from 3.75%. The central bank has now cut 175 basis points since its first cut in June 2024. The last two meetings have seen a decline of 100 basis points after 3 consecutive cuts of 25 basis points.

• Prior statement said ” If the economy evolves broadly in line with our latest forecast, we expect to reduce the policy rate further” but that was dropped
• Current statement says “Going forward, we will be evaluating the need for further reductions in the policy rate one decision at a time”
• Current statement says “Governing Council has reduced the policy rate substantially since June.”

From his press conference opening statement Macklem:

• With the policy rate now substantially lower, we anticipate a more gradual approach to monetary policy if the economy evolves broadly as expected.”
• Noted that Q3 GDP growth was lower than BOC expected and Q4 tracking lower as well
• Said Canada’s job market is still softening
• Consumer and housing both improved in Q3 as lower rates boosted spending
• Reduced immigration targets suggest 2025 growth will be slower than BOC expected
• The economic outlook is clouded by the possibility of new tariffs on Canadian exports to the United States, which Macklem calls “a major new uncertainty”

BOCs Macklem during his Q&A said that the central bank discussed both 25 and 50 basis point rate cuts before ultimately deciding on a 50 bps reduction. That the decision was driven by two key factors:

• The need to exit restrictive policy territory. and
• Economic data signaling a softer GDP growth outlook compared to October estimates.

Lower immigration targets were cited as a factor behind anticipated slower growth, while the potential for tariffs on Canadian exports adds significant uncertainty, though the bank emphasized it cannot base policy on speculative risks.

Macklem acknowledged that the economy remains in excess supply with signs of softness, but widespread job losses typical of recessions have not materialized. The Canadian dollar’s weakness has largely stemmed from U.S. dollar strength and will need to be factored into future forecasts. Housing market dynamics, influenced by immigration and rate cuts, are being closely monitored.

The USDCAD moved lower initially (higher CAD) as markets reacted to the 4-year highs and the acknowledgment that the pace of cuts was to slow, but the pair recovered as the day progressed (cutting some of the CAD gains).

Technically, the price of the USDCAD moved to – and through – a swing area target at 1.4145 and the rising 100 hour MA but could not sustain downside momentum and bounced back above those levels (the 100-hour MA is at 1.4135 and moving higher). The pair is trading at 1.4162 going into the close. A move back below 1.4145 and the 100-hour MA could see more selling with a swing area at 1.4089 to 1.4104 as the next target support. A move above 1.4177 would disappoint sellers looking for corrective selling.

Crude oil moving higher is a positive for the CAD generally. Crude oil is up $1.75 or 2.55% today, at $70.34 currently. Its 100 day MA at $71.65 is the next key upside target. However, the move higher today had limited impact.

In the US today, the CPI data came in as expected at 0.3% for both the headline and the core readings. Although as expected, the core has now been up by 0.3% for 4 consecutive months slowing the decline and leaving the YoY core well above the 2% target at 3.3%. The headline moved up to 2.7% from 2.6% in the prior month. Nevertheless, the market was pretty much set that anything as expected or better would allow the Fed to further adjust policy lower. The expectation for a 25 basis point cut is up to 95% when the Fed meets next Tuesday and Wednesday.

The ECB will meet tomorrow and is expected to cut rates by 25 basis points to 3.15% from 3.4%. That decision will be announced at 8:15 AM ET with the press conference scheduled to start at 8:45 AM ET.

The EURUSD had an down, up and back down again. The pair did stay below the 200 hour MA at 1.05322 after two tests of the MA line found willing sellers. The price ia trading ner 1.0500 into the close with support below at 1.0448 to 1.0461.

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This article was written by Greg Michalowski at www.forexlive.com.