Risk-aversion dominates this morning as a combination of mixed tech earnings, strong US housing numbers, a more concerned Bank of Canada, and US Treasury issuance volumes put market participants on the back-foot.

Microsoft’s strong sales figures initially pushed markets higher but subsequently reversed as Google’s poor cloud computing results became the focus. The respective index weightings of these stocks have increased over time and have far reaching effects across asset classes, including FX. Meta , Facebook’s parent, is due to release results later today and Amazon on Thursday.

On the housing front, very strong figures were released for the month of September in the US. New home sales on a month-over-month basis came in at +12.3%, smashing a 0.7% median survey expectation. Such strength in the housing market certainly does not indicate to the Fed that economic conditions are getting tight, giving them additional rope to maintain a hawkish stance.

The Bank of Canada, on the other hand, is being seen as indicating a dovish stance with today’s rate decision. The BoC kept rates unchanged at 5% and indicated that they would hike further if needed. What has spooked the market is the cut to growth forecasts coupled with concerns about sticky inflation given the estimated return to their 2% target was pushed out 6 months to late 2025. Essentially this is a stagflation risk and the language used in the statement was overall more dovish than that of the prior release, pushing USD/CAD higher this morning.

Finally, the continued volatility in the US Treasury markets shows no signs of slowing down as much of the positivity from two major fund managers cutting their shorts has evaporated with the stark reality of increased issuance. The market is considering potential increases in auction sizes next week and this traditionally unimportant data point has now taken center stage.

EUR/USD is essentially unchanged on the day as the market awaits tomorrow’s European Central Bank rate decision and press conference. While the statement likely won’t refer to the subject of widening Italian bond yields, it will be worth noting to see if it comes up during the press conference as there is growing talk of this issue weighing down the Euro.

USD/CAD see above.

GBP/USD is marginally lower on the day as increased concerns of an upcoming economic slowdown on the back of yesterday's PMI and employment continue. The primary worry is the Bank of England’s ability to fight inflation while growth cools, a common issue circulating across many central banks currently.

USD/MXN is slightly higher on the day as headlines circulate regarding Chinese property developer Country Garden’s default. China is a major source of trade for many emerging markets and a major slow down would have profound effects on many countries including Mexico.

USD/BRL is essentially unchanged on the day as a new poll shows President Lula’ s approval rating dropping significantly on the back of a perceived economic slowdown. The rate differential between Brazilian and US interest rates has moved slightly lower as of late primarily due to the rise of Treasury yields in the US, a key driver of the Real’s strength traditionally. In addition, volatility implied by the options market has come down as the pair has proved relatively stable as of late.