Chinese Industrial Production data weaker than expected
Canada Inflation rises 4.1% y/y, forecast 3.9%
US dollar opens mixed in risk averse atmosphere
FX at a Glance:
USDCAD Snapshot Open 1.2669-73, Overnight Range 1.2668-1.2707, Previous close 1.2694
USDCAD sank then soared following yesterday’s US inflation data. The month over month result (0.3%) was below July’s 0.5%, which precipitated the sell-off to 1.2602. However, the 5.3% y/y result, although lower than 5.4% in July showed inflation remained stubbornly high and it suggests that only the conclusions are “transitory. USDCAD rallied and closed at 1.2694. Prices consolidated in a 1.2668-1.2707 band overnight with USDCAD undermined by the 3.7% rise in WTI prices since yesterday afternoon.
Canada August CPI did not have the same impact when released today. Statistics Canada reported August CPI rose 4.1% y/y compared to 3.7% in July and said it was the fastest pace since March 2003. is expected to be 3.9% y/y, higher than July’s 3.7% result. They said “ The increase in prices mainly stems from an accumulation of recent price pressures and from lower price levels in 2020. Excluding gasoline, the CPI rose 3.2% year over year”.
USDCAD dropped from 1.2683 to 1.2672 on the news. The ambivalent reaction is because today’s data will not have any immediate impact on Canadian interest rates. Last week, Bank of Canada Governor Tiff Macklem reiterated that domestic rates were not going anywhere until at least H2 2024.
USDCAD direction will be determined by Wall Street, and global risk sentiment.
Technical view: The intraday USDCAD technicals are bullish while prices are above 1.2600, which guards the longer term uptrend line at 1.2550. The 1.2690 downtrend line from August 20 is under stress but needs a decisive close above 1.2710 to suggest further gains. A move below 1.2640 targets 1.2600 again.
For today, support is at 1.2640 and 1.2600. Resistance is 1.2690 and 1.2730. Today’s range 1.2620-1.2710
Chart USDCAD 4 hour
Source: Saxo Bank
G-10 FX recap and outlook
Wall Street hemmed and hawed after yesterday’s CPI report. The haws won, and the S&P 500, DJIA and Nasdaq closed with losses, although they were relatively modest. However, it was enough to spook Asia markets which were already nervous due to China.
Chinese data was weaker than expected. August Retail Sales rose 2.5% y/y, well below the 7.0% predicted while Industrial Production was 5.3%y/y compared to 5.8%y/y. Traders weren’t buying the official explanation that the data showed fairly good growth as economic operations were still in recovery.
Gold prices churned after the US CPI data, falling to $1782.00 then surging to $1808.00. The mild shift to negative risk sentiment has underpinned prices. Nevertheless, the shiny metal is locked inside a $1770.00-1835.00 range which has contained price action since August 12.
China’s crackdown on capitalism, the fall-out from Evergrande property developer’s financial problems, combined with hostile rhetoric towards Taiwan, and conflicting reports that Xi Jinping blew off Biden’s request for a face to face summit fueled negative risk sentiment.
EURUSD traded in a 1.1800-1.1830 range with prices supported by better than expected July Eurozone Industrial Production data (actual 1.5% m/m vs June -0.1% m/m). More dovish ECB-speak, this time from Spanish Central Bank Governor Pablo de Cos, who repeated that Eurozone inflation increases are temporary. EURUSD technicals are bearish below 1.1850.
GBPUSD was unable to sustain post-CPI gains and traded with a negative bias in Asia. That changed when UK inflation posted a 3.2% y/y increase in August, compared to 2.0% in July. However, the Office for National Statistics (ONS) said the gains would be temporary. However, negative risk sentiment is underpinning the US dollar and weighing on GBPUSD.
USDJPY dropped from 110.13 post US CPI yesterday to 109.23 in early NY trading due to both safe-haven demand for yen, and the drop in 10-year Treasury yields from1.35% to 1.27%
AUDUSD and NZDUSD managed to scrape out small gains overnight due to firmer commodity prices.
The US data is second-tier leaving FX direction to be determined by Wall Street.
Chart of the Day- Gold (XAUUSD)
Source: Saxo Bank
FX open, high, low, previous close
Source: Saxo Bank
Today’s Bank of China Fix, 6.4492, Previous 6.4500
Shanghai Shenzhen CSI 300 index fell 1.01% to 4867.32
August Retail Sales rose 2.5% y/y, well below the 7.0% predicted while Industrial Production was 5.3%y/y compared to 5.8%y/y
Chart: USDCNY 1 month
Source: Yahoo Finance