USDCAD open: 1.3811, overnight range 1.3798-1.3835, close 1.3806
USDCAD trickled higher yesterday due to broad-based demand for US dollars when the 10-year Treasury yield rose from 4.78% on Tuesday to 4.861% today. US Treasury Secretary Scott Bessent’s latest attempt to manipulate long bond yields lower failed. Ongoing US trade sanctions, bans, tariffs etc are limiting USDCAD downside. Even so, Trump’s tariffs are also impacting Americans. The graph below, from the Wall Street Journal shows the impact on 5 states. It may cost them jobs but 4 of the states are staunch Republican. “My pappy voted Republican, his pappy voted Republican and I vote Republican.”
WTI oil prices extended overnight gains and traded in a $95.39-$100.87 range where they are in NY trading. The rally was exacerbated by demand for US dollars after todays PPI index results and the subsequent spike in US Treasury yields.
USDCAD Technicals
USDCAD technicals are little changed from Wednesday. They are bearish below 1.3840 and remains in its downtrend channel, though the slide has stalled just above the 200-day moving average at 1.3834. The daily RSI has recovered to and the MACD line has crossed above its signal line, taking some sting out of the bearish momentum even as the broader structure remains intact.
Longer term, USDCAD bounced off the 61.8 percent Fibonacci retracement of the January-July range at 1.3783, which is close to the recent low and sits above the daily lower Bollinger band near 1.3722. A close below 1.3783 puts that support zone back in play,
For today, support is 1.3780 and 1.3750 and resistance is at 1.3840 and 1.3870
Today’s range 1.3770-1.3850
FX Heat Map
FX open high low 6:00 am
US Inflation Still Rising
US Producer Price Index rose 5.4% y/y (forecast 5.3%) and PPI-ex food and energy rose 4.6%y/y (July 4.3%). Analysts blame the increase on tariffs and higher oil prices Today’s data raised the odds for a Fed rate hike to 70% from 61.2% yesterday and that means tomorrow’s CPI number will be a flashpoint. Weekly jobless claims rose 206,000 which suggests no issues with the labor market.
The US 10-year yield spiked to 4.909% from and overnight low of 4.827% while the US dollar surged and global stocks and US equity futures dropped.
Iran and US Step Up Attacks
Iran is promising to attack oil tankers in ports in Kuwait and Bahrain if the US attacks any more Iranian vessels. The Americans are annoyed that the IRGC is brazenly firing missiles at US Navy ships and musing that China is supplying Iran with sophisticated weapons. There is hope. Trump said the war will be over after the US mid-terms.
House of Cards
Mr. “I am the House” Bessent tripled the size (from $2.0 to $6.0 billion) of US long-term debt with the goal of “cooling market fever”. It backfired. It was a flop. Long bond yields rose because traders viewed the action as the government manipulating interest rates in hopes of swaying voters ahead of the mid-term elections. The action boosted long-dated Treasury yields and the US dollar while driving stock prices lower.
Taking Stock
Asian equities closed with the Hang Seng losing 1.27% and Australia’s ASX 200 dropping 1.03% while Japan’s Topix rose 0.20%. As of 7:15 am, the French CAC 40 is up 0.18%, the German DAX is flat and the UK FTSE 100 is down 0.39%. S&P 500 futures are unchanged, the 10-year Treasury yield is 4.871%, the DXY is 98.93 and gold is $4,382.35.
EURUSD | Range 1.1592-1.1642
EURUSD dropped to its session low in the aftermath of the US PPI data after ticking higher a few minutes earlier when the ECB surprised no one and raised its benchmark rate by 25 bps to 2.5%. ECB President Christine Lagarde has just started her press conference, but it is the risk for a faster pace of US rate hikes that is driving EURUSD direction.
GBPUSD | Range 1.3491-1.3561
GBPUSD flat-lined overnight then dropped to the low after the US PPI data sparked a spike in the US 10-year Treasury yield. The escalating US and Iran war has driven Brent crude to a peak of $105.89 and the inflationary risk from the price gain is stoking expectations for a BoE rate hike. However, gains are stymied because Governor Bailey recently warned that further rate hikes were not guaranteed.
USDJPY | Range 153.30-154.67
USDJPY rallied after US Treasury yields surged due to increased odds for the Fed to hike rates next week and again before year end.
AUDUSD | Range 0.71580.7204
AUDUSD found a bottom post US data but remains in its uptrend from the end of June. Prices are underpinned by rising commodity prices and a hawkish RBA.
USDMXN | Range 16.8859-16.9991
USDMXN surged after the US data due to a narrowing of MEX/US interest rate spreads. Yesterday’s modestly higher headline inflation result (actual 3.26% vs July 3.12%) supported Banxico’s bias to leave rates unchanged. The peso may also be benefitting from the US shifting its hostile trade demands to Canada.
CHINA
- PBoC Fix: 6.7769 vs Exp. 6.7042 (prev. 6.7804).
- Shanghai Shenzhen CSI 300 fell 0.53% to 4,548.39
Sources: Investing.com, Bloomberg, Reuters, Yahoo Finance, US Census Bureau, Trading Economics, Tradingview
