December 19, 2024
- Hawkish Fed sinks equities and sends greenback soaring.
- BoJ leaves rates unchanged-of course they did.
- USD opens sharply higher but off its best levels.
FX at a Glance
Source: IFXA/RP
USDCAD open 1.4392, overnight range,1.4381-1.4468, close 1.4449
USDCAD was already bid ahead of yesterday’s FOMC meeting.
Trump’s tariff threat, the resignation of the Finance Minister, the 50 bps BoC rate cut and dovish outlook, combined with and a huge jump in the projected budget deficit for this year, had investors scrambling to buy USDCAD. The FOMC’s “hawkish” rate cut exacerbated the issue and USDCAD spiked to 1.4451. Profit-taking has knocked USDCAD back to 1.4376 today.
The Canada and US 10-year government bond spread widened sharply, from -119.1 on Monday to -130.5 today, which added another layer of support to USDCAD.
Prime Minister Justin Trudeau is not feeling the love. The former media hound who could tear up on demand and with a penchant for self-aggrandizing selfies has gone into hiding. He has cancelled all his scheduled year-end interviews. Perhaps a stroll in the snow, like his father? We can only wish.
USDCAD Technicals
The intraday USDCAD technicals are bullish while trading above the December 6 uptrend line which is at 1.4280. However momentum indicators suggest USDCAD is overbought in the 1.4450 zone and prices may consolidate with a 1.4280-1.4450 range before the next move higher.
Fibonacci retracement analysis of the March -June 2020 Covid range suggests that the break above 1.4095 which represents the 78.6% retracement level has opened the door to a 100% retracement which will lead to 1.4660.
For today, USDCAD support is 1.4340 and 1.4290. Resistance is 1.4430 and 1.4460
Today’s Range: 1.4360-1.4460
Chart: USDCAD daily
Source: Oanda.com
Smart Money, Dumb Forecasts
Wall Street is rife with very smart people, and they have the bank balances to prove it. Those balances are a tad smaller today after the Fed peed all over “sure thing” interest rate outlooks for 2025. Everyone, including their mothers and Uber drivers, knew that the Fed would be cutting rates to around 3.5% by the end of 2025. Policymakers disagreed. They cut rates by 25 bps to 4.50% but are now projecting just two more rate cuts in 2025, from four predicted in September.
Bond’s tanked, Treasury yields soared, and the US dollar rocketed higher. Profit-taking has trimmed US dollar and Treasury yield gains.
It is also year-end, and the reduced liquidity has certainly exaggerated the price action while a profit-taking sell-off was long overdue. Furthermore, Trump may not be President yet, but he still managed to kibosh a debt funding bill because it did not include an increase in the debt ceiling. He wants any government shutdown (if it happens) to occur on Biden’s watch. He said, “If Democrats won’t cooperate on the debt ceiling now, what makes anyone think they would do it in June during our administration? Let’s have this debate now.”
Number Crunching
US Q3 GDP rose 3.1% easily topping the forecast of 2.8% y/y and supporting the FOMC decision to slow the pace of rate cuts. Core Personal Consumption and expenditures rose 2.2% a tad higher than the 2.1% y/y forecast while Initial jobless claims dropped by 12,000 to 220,000. (forecast 230,000 vs 242,000 last week)
Global Equity Markets Sink
Wall Street closed in a sea of red ink and Asia and European markets followed suit. Australia’s ASX index dropped 1.70%, while Japan’s Topix fell 0.22%. European bourses are deep in the red, led by a 1.62% fall in the French CAC 40 index. S&P 500 futures are down 0.42%, while the 10-year Treasury yield sits at 4.534% compared to yesterday’s opening level of 4.41%.
EURUSD
EURUSD is licking its wounds after plunging from 1.0491 pre-FOMC to 1.0345 in the aftermath. Prices clawed back some losses and climbed from 1.0347 to 1.0412 overnight. Sweden’s Riksbank cut rates by 25 bps, while Norway’s Norges Bank left rates unchanged. Both outcomes were expected. EURUSD continues to be pressured by divergent ECB and Fed monetary policy outlooks, but French political uncertainty is another factor driving the single currency lower. The EURUSD downtrend from the beginning of October is intact while prices are below 1.0630.
GBPUSD
GBPUSD got whacked in the wake of the FOMC decision and dropped to 1.2562 from a pre-FOMC level of 1.2719. Prices bounced overnight and GBPUSD rose from 1.2563 to 1.2668. The Bank of England left rates unchanged at 4.75, but three policymakers wanted to cut rates to 4.5%. The decision to stand pat was due to rising inflation. GBPUSD dropped to 1.2601 from 1.2631 on the news.
USDJPY
USDJPY rallied post-FOMC, climbing from 153.74 to 154.86 fueled by an 11 bp surge in the US 10-year Treasury yield to 4.52%. If that wasn’t bad enough, the Bank of Japan left interest rates unchanged at 0.25%, in an 8:1 vote, and USDJPY spiked to 157.15. Policymakers have a decision phobia. Governor Ueda said he needs inflation to rise “one more notch” before a tightening decision. Officials continue to claim they are unable to act because of uncertainty, but how much damage can a rate increase from almost nothing to barely nothing do?
AUDUSD and NZDUSD
AUDUSD traded poorly, falling from a pre-Fed level of 0.6310 to 0.6200, then grinding back to 0.6252 overnight.
NZDUSD dropped to 0.5620 from a peak of 0.5753 yesterday, then clawed back some losses overnight, rising to 0.5662. The currency saw added selling pressure after the economy sank into a recession in Q3. GDP fell 1.0% compared to the forecast for a -0.2% drop, and analysts increased the odds for more aggressive RBNZ rate cuts in 2025.
USDMXN
USDMXN spiked from 20.0958 to 20.4261 yesterday, then consolidated in a 20.3221-20.4415 range. Banxico is widely expected to cut its benchmark rate to 10.25% from 10.50% due to easing domestic inflation.
BTCUSD (Bitcoin)
BTCUSD traded like a fiat currency in and around the FOMC meeting. BTCUSD dropped from a peak of 106,785 to 100,231 yesterday then chopped around in a 98,843-105,320 range overnight. News that El Salvadore would trim its Bitcoin efforts as part of an IMF deal also weighed on prices.
FX high, low, open (as of 6:00 am ET)
Source: Investing.com
China Snapshot
PBoC Fix: 7.1911 vs exp. 7.3165 (prev. 7.1880)
Shanghai Shenzhen CSI 300 rose 0.09% to 3945.46
Chart: USDCNY and USDCNH
Source: Investing.com
