USD/CAD: Surges to highest levels since October 2022; Commodity prices remain volatile on geopolitical headlines

• Loonie lower as oil prices pare earlier gains
• Overnight Index Swaps eye BOC’s next move as a rate cut in H2 2024
• Fed funds futures see a 31% chance of a rate by the January 31st FOMC meeting

The US dollar is rallying against the Canadian dollar as the odds of one more rate hike seem more likely with the Fed than with the BOC.  After the BOC’s October 25th meeting, traders appear convinced that the bank is done raising rates. Today’s impressive US  economic data showed core PCE came in a little hotter-than-expected and spending remains robust.  Oil, Canada’s largest export has also seen its October surge fade  as investors await to see if physical markets will see any disruptions given all the geopolitical angst.

USD/CAD 4-hour chart: 

Commodities:

Oil

Oil remains the key geopolitical risk barometer as prices rise when war premium grows.  So far, there has been little disruption with crude supplies and that is why oil still trades around the levels after the first oil prices surge occurred following the Hamas surprise attacks against Israel.

Crude prices rose after US airstrikes targeted Iranian targets in Syria.  Middle East tensions are not going away anytime soon and that could eventually lead to some crude export disruptions from Iran.  Brent crude should eventually find a home above the $90 a barrel level as global growth concerns from a relentless bond market selloff could be easing.  Next week’s Fed and BOJ rate decisions alongside the Treasury’s quarterly refunding statement will dictate the next big move in global bond yields, which will decide what happens with the short-term global growth outlook.

Gold

Gold is lower on the day after impressive Amazon earnings reignited the mega-cap tech trade.  Middle East tensions are rising and that should provide some underlying support for bullion. Gold’s been wavering as everyone in the bond market wants to know which level the 10-year Treasury yield will test first, 4.50% or 5.50%?

Gold seems likely to make a return above the $2000 level given there is too much geopolitical angst.  Next week is key for the bond market given all the rate decisions and the Treasury’s refunding statement.

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