The Morning Update

The USD is steady, oil prices strengthen, equity markets are mixed, and US yields ease ahead of Jobs & PMI data. The USD index steadies near a 1-week high ahead of a flurry of key employment data this week that could upend expectations on the direction of US interest rates. Oil prices rose despite ongoing uncertainty over OPEC+ cuts, as encouraging signals in Europe and Middle East tensions helped drive prices higher. Equity markets are mixed as investors opt to wait and see for the US jobs data Friday for direction on US interest rates. Today, the focus will be on the US JOLTS job and US PMI data to help provide intraday direction to currency markets.

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In other news. Moody's cuts China's credit outlook to Negative from stable, citing lower medium-term economic growth. Nokia plunges to a 3-year low after losing a major AT&T deal to Ericsson. The US joins dozens of countries in backing COP28 pledge to slash cooling emissions. Airbus might need state backing to replace A320, chief says. Israel intensifies southern Gaza offensive, US & UN urge civilian protections. The fall in eurozone business activity adds to recession expectations. 'The outlook is terrible': Expert views on Canadian banks for 2024-BNN Bloomberg.

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In currency markets. The Reserve Bank of Australia keeps rates on hold, and its dovish comments put selling pressure on the AUD. The USD steadies at 1-week highs ahead of key jobs data this week. China CNY slips after Moody's downgrade. Russian rouble slides to a 3-week low against the USD. CNY & Asian currencies slip 0.1% on average vs USD. Trading currencies are mixed with AUD weakening 0.65%, NZD slipping 0.2%, MXN, SEK & NOK dipping 0.1% while CHF & ZAR are flat, and JPY firmed 0.15% vs USD.

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In commodity markets. Oil prices firmed by 0.4%, Natural Gas prices rallied by 1.5%, Gold prices are flat, Silver prices dipped by 0.75%, Copper prices dropped by 1.1%, and Wheat and Soybean prices gained by 0.4%.

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CAD weakens in early trading as the loonie continues to consolidate ahead of Wednesday's Bank of Canada and Friday's key US Jobs data. The Canadian dollar continues to slide as the USD regains strength as we see a general risk-off sentiment return as investors look for clearer signals for US interest rates. The Bank of Canada is widely expected to keep interest rates on hold on Wednesday, and we are seeing a growing number of economists expecting the BoC will start cutting interest rates in Q2/24 as inflation levels ease and the economy slows. Intraday we expect the loonies to have room for further weakness towards 1.3600 if we see the US JOLTS Job data print outside expectations.

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EURCAD bounces off 4-week lows on expectations that the BoC will take a dovish tone tomorrow.

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EUR stalls below 1.0850 as the focus shifts to the US Jobs & PMI data. According to a recent survey, the eurozone's business activity decline improved slightly last month, but it still suggests that the economy will shrink again in Q4/23 due to the services industry's ongoing struggle to create demand. Elsewhere ECB hawk Schnabel scraps the prospect of more rate hikes after the recent significant drop in inflation levels, her comments mark a dovish shift from Schnabel, who was seen as the most influential voice among the policymakers to drive interest rates higher. We anticipate the Euro will continue to struggle to regain its upside traction ahead of Friday's key US jobs data.

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GBPEUR holds at 3-month highs after comments from ECB Schnabel who was a strong advocate for ECB rate hikes shifted to a dovish tone after recent falls in eurozone inflation levels.

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GBP bounces off 1.2600 but is capped at 1.2650 as the pound is sidelined ahead of a flurry of key USD data releases. The pound is finding underlying support vs its G10 peers as many economists anticipate the BoE will keep interest rates on hold in 2024, while most of its G10 peers are anticipated to ease their interest rates by Q2/24. The pound has room for further weakness vs USD towards 1.2500 and to hold above the key 200-day moving average at 1.2470. Intraday the US JOLTS Job and PMI data will help drive direction.