April 19, 2024

• NY Fed President Williams injects rate hike into the equation.
• Risk aversion soars then recedes overnight.
• US dollar very volatile overnight but opens little changed from close.

FX at a Glance

Source: IFXA/RP

USDCAD Snapshot: open 1.3759, overnight range 1.3746-1.3805, close 1.3767.

It was a wild and woolly night for global markets including FX but you wouldn’t know it if you compared Thursday’s USDCAD open with today’s. It was unchanged.

Traders found it easy to fade the post-Israel/Iran news as a spike in WTI prices is generally bearish for USDCAD, which is what happened. In addition, being around 10,000 km from the conflict zone is a bit of a cushion.

USDCAD downside may be vulnerable from CAD/US interest rate divergence concerns. The spreads have eased a tad (in Canada’s favour) but that can change quickly if the Fed indicates inflation risks are skewed to the upside.

WTI oil rallied to 86.28 before dropping to 82.03 in NY trading.  Increased US crude inventories hare helping to offset geopolitical risks.

The US data and Canadian economic calendars do not have any top-tier releases. That suggests the trading focus will be stay on geopolitics and US interest rates.

USDCAD Technicals

The USDCAD technicals are bearish bullish. USDCAD broke through the top of its 1.3500-1.3740 channel that has guided prices higher since the beginning of the year. If prices remain above the breakout level (1.3740) it suggests a new leg higher with a test of 1.400 in the cards. A break below 1.3740 risks a retest of 1.3630 but only a move below 1.3540 would negate the uptrend.

For today, USDCAD support is at 1.3730 and 1.3690. Resistance is at 1.3805 and 1.3840. Today’s range is 1.3720-1.3810.

Chart: USDCAD daily

Source: DailyFX

If Iran gets attacked, but denies it happened, did it occur?

In the early hours of the Asian trading session, traders were rocked by tweets on “X” claiming Israel was attacking Iran. Israeli officials have not said too much about the attacks while Irani official’s deny that an attack occurred, despite reports of explosions at an airbase near Isfahan.

“To the Lifeboats”

Markets reacted fast and furiously. The US 10-year Treasury yield plunged from 4.635% where it closed in NY on Thursday to 4.494% in Asia. Oil prices spiked, with WTI jumping to 86.28 from 82.23. USDCHF, the world’s favorite safe haven currency, plunged to 0.9012 from 0.9132, and the US dollar index rallied. The moves were reversed almost as quickly as they occurred. If Iran wanted to pretend it was not attacked, then traders would as well. Feigned ignorance is bliss.

Fed rate cut hopes fading.

The US dollar bid has been reinforced in recent days after a host of Fed officials pushed rate cuts further down the road. Chair Jerome Powell wants more time and Minneapolis Fed President Neil Kashkari said the Fed could wait until 2025. But it was New York Fed President John Williams that really spooked markets. He said, “If the data are telling us that we would need higher interest rates to achieve our goals, then we would obviously want to do that.” No one wants to hear “higher rates,” no matter what the context, from a key Fed official.

Equities are underwater.

Asian equity indexes closed with losses but were off their worst levels. Japan’s Nikkei 225 index fell 2.66% and Australia’s ASX 200 index fell 0.98%. European bourses are in the red, led by a 0.64% decline in the German Dax. S&P 500 futures are close to flat. Gold rallied to 2417.79 then dropped back to 2382.00.

EURUSD

EURUSD plunged then climbed inside a 1.0610-1.0663 range. The bottom was seen on the initial reaction to the Israel attack on Iran, then prices climbed to 1.0657 in NY. A couple of ECB officials expressed caution about cutting rates. Governing Council member Martins Kazaks said, “One has to remain cautious, because it would be very tricky to start hiking rates in the middle of the cycle.” German PPI rose 0.2% m/m in March but the news did not have any impact on FX.

GBPUSD

GBPUSD dropped to 1.2389 in Asia then rallied to 1.2456 before easing to 1.2437 after Retail Sales missed expectations. (actual 0% m/m in March vs. forecast 0.3%) with analysts noting that on an annual basis, retail sales are 1.2% below their pre-covid level. Traders are cautious ahead of the weekend and the risk of more Iran/Israel drama.

USDJPY

USDJPY recouped all its safe-haven losses and rallied from 153.59 to 154.68. The resurgence of US treasury yields fueled the gains. BoJ and Finance officials continue to hint at intervention, but no one is listening.

AUDUSD and NZDUSD

AUDUSD traded in a 0.6362-0.6425 range and it has a small bid as risk aversion fades. However, gains may be limited today due to caution ahead of the weekend.

NZDUSD followed AUDUSD moves and bounced in a 0.5852-0.5902 band.

USDMXN

USDMXN traded in a 17.0410-18.1750 range but dropped to 17.2054 in the wake of better than expected Retail Sales data.  February retail sales rose 3.0% y/y compared to a drop of 0.8% in January.

FX high, low, open (as of 6:00 am ET)

Source: Investing.com

China Snapshot

PBoC fix: 7.1046 (prev. 7.1020).

Shanghai Shenzhen CSI 300 fell 0.98% to 3541.66.

Chart: USDCNY and USDCNH 4 hour

Source: Investing.com