The sluggish, back-pedalling US dollar of yesterday became a perky, hard-charging greenback overnight.  The release of the FOMC minutes, political theatre in Australia and tit-for-tat tariffs between the US and China that went into effect today drove the change in the sentiment towards the greenback.  It opened in New York with gains against all the G-10 majors.

The FOMC minutes left little doubt that the Fed will be raising rates again on September 26.  The minutes said, “participants suggested that if incoming data continued to support their current economic outlook, it would likely soon be appropriate to take another step in removing policy accommodation.”   The probability of such a move is 94% according to the CME FedWatch tool.

The US dollar was sold immediately after the minutes were released because traders focused on the statement: “all participants pointed to ongoing trade disagreements and proposed trade measures as important sources of uncertainty and risks.”

Asia and European traders saw it differently, and the dollar climbed steadily into the New York open.  It had some help.  Australia political turmoil crushed AUDUSD.  Prime Minister Turnbull is in the midst of a leadership crisis, parliament has been adjourned, and candidates are lining up to replace him.  AUDUSD dropped from 0.7353 at yesterday’s close to 0.7284.

USDJPY rallied, rising from 110.53 to 110.91 on US rate hike expectations but remains in a downtrend while prices are below the 111.00-10 area.

EURUSD backed off from resistance at 1.1695 yesterday, dropped to 1.1543 in Asia and then traded sideways in a 1.1550-1.1567 range.  Eurozone Markit composite PMI was unchanged at 54.4 in August, but Manufacturing PMI was lower than expected. (Actual 54.6 vs forecast 55.0)

GBPUSD headed lower with EURUSD.  This week’s GBPUSD rally served to squeeze out week GBPUSD short positions, but Brexit concerns continue to cap gains.

USDCAD dipped to 1.2995 at yesterday’s close and then climbed steadily overnight, and opened in New York at the top of its range.  Yesterday, Retail Sales rose 0.2% in June as forecast, but well below the May result.  The Nafta negotiations are the most significant drag against Canadian dollar gains.  Canada’s negotiator, Chrystia Freeland said she was “very encouraged” by the progress.  Canadian dollar bulls would be more encouraged if Canada were at the negotiating table.

US economic reports today and tomorrow will highlight the strength of US economic growth and underpin the greenback in the process.  There aren’t any Canadian data releases.

USDCAD Technical Outlook

The USDCAD technicals are bearish while prices are below 1.3150, looking for a break below 1.2950 to extend losses to 1.2825 and then 1.2690, based on Fibonacci retracements of the 2018, 1.2260-1.3385 range.  In the short term,  USDCAD is conolidating its overnight gains in a narrow 1.3020-50 range.  A break above 1.3050 would target 1.3090 while a move below 1.3020 would lead to 1.2990.  For today, USDCAD  support is at 1.3020 and 1.2990.  Resistance is at 1.3050 and 1.3090.