August 14, 2024
- RBNZ cuts rates by 25 bps to 5.25%
- UK inflation data deflates rate cut hopes
- US dollar trading softer with inflation data looming.
FX at a Glance
Source: IFXA/RP
USDCAD open 1.3702, overnight range 1.3700-1.3721, previous close 1.3706
USDCAD is drifting lower in concert with broad based US dollar weakness against the major G-10 currencies. Today’s Core CPI, monthly and year over year results were exactly as predicted at 0.2% m/m and 3.2% y/y. Traders were hoping for weaker data and the USDCAD sell-off stalled.
USDCAD is not getting much support from higher oil prices which also suggests that when WTI retreats it will not have much impact on the currency pair. And WTI is retreating-albeit modestly. Prices dropped from 80.14 on Tuesday to 77.91 today after the presence of the USS Abraham Lincoln battlegroup appears to have dissuaded Iran from a large scale attack on Israel. However, the latest IEA and Opec reports suggesting an upcoming oil glut may be the real reason for the slide in prices.
USDCAD Technicals
USDCAD technicals are in a modest downtrend channel bound by 1.3740 on the top and 1.3660 on the bottom. In the absence of a major CPI surprise today, the channel should contain the price action.
The uptrend line from the beginning of the year comes into play in the 1.3630 area and it is being guarded by the 100-day moving average at 1.3690. The 200 day moving average is at 1.3595
For today, USDCAD support is at 1.3690 and 1.3660. Resistance is at 1.3740 and 1.3770. Today’s Range 1.3680-1.3740
Chart: USDCAD 4 hour
Source: DailyFX
Fed Rate Cut Speculation Fizzles
Investors and traders are drooling in anticipation of the start of a Fed easing cycle in August, reacting to any data hinting at declining inflation. Headline CPI rose 2.9% y/y, below the forecast and June’s 3.0% result. Core-CPI matched the 3.2% y/y forecast and the 0.2% monthly forecast.
Fed funds futures traders were really unimpressed. The odds for a 50 bp rate cut in September dropped from 53% to 39% , post CPI. The US 10-year yield rose from 3.838% to 3.8875%. Today’s CPI numbers will further heighten the focus on Fed Chair Jerome Powell’s remarks at the Kansas City Fed’s Jackson Hole symposium from August 22 to August 24.
EURUSD
EURUSD rallied yesterday, extending gains overnight from 1.0984 to 1.1029. The rally paused ahead of this morning’s US inflation report. Further gains above 1.1035 might face resistance around 10:00 am EDT when a $1.8 billion option strike expires. Additionally, the year-to-date peak of 1.1038 may attract some offers.
GBPUSD
GBPUSD is recovering from its post-UK CPI losses. Prices dropped from 1.2868 to 1.2819 after inflation rose less than expected, increasing the odds of a September rate cut. However, the report was mixed, with headline CPI rising 2.2%, higher than June’s 2.0% increase.
USDJPY
USDJPY rallied from 146.08 to 147.50 in Asia before slipping to 147.03 in early NY trading. The price action is mostly noise ahead of the August 23 parliamentary session featuring BoJ Governor Kazuo Ueda. In the longer term, the BoJ is expected to raise rates again in 2024, with analysts predicting further unwinding of carry trades.
AUDUSD and NZDUSD
AUDUSD traded within a 0.6618-0.6643 range ahead of the US inflation numbers. Meanwhile, NZDUSD plummeted after the RBNZ surprised more than half the market by cutting rates 25 bps to 5.25%. Prices dropped from 0.6084 to 0.6003, as policymakers anticipate a recession starting mid-year and expect inflation to stabilize around 2.0%. ASB Bank predicts rates could drop to 3.25% by the end of 2025.
USDMXN
USDMXN traded defensively within an 18.9194-19.0400 range overnight after peaking at 19.1020 yesterday. A break below 18.8870 could suggest further losses to 18.8300, especially if today’s US CPI number is tame.
FX high, low, open (as of 6:00 am ET)
Source: Investing.com
China Snapshot
PBoC fix: 7.1415 vs exp. 7.1493 (prev. 7.1479).
Shanghai Shenzhen CSI 300 fell 0.75% to 3309.24
Chart: USDCNY and USDCNH
Source: Investing.com
