- IEA downgrades Q1 oil demand
- GBPUSD rallies following robust employment data
- Canadian dollar underperforming
FX at a Glance
Source: IFXA Ltd/RP
USDCAD Snapshot Open 1.2810-14, Overnight Range 1.2800-1.2834, Previous close 1.2800
USDCAD traded in a 1.2800-1.2825 overnight rand climbed to 1.2834 in NY after the US PPI data. The Canadian dollar was the weakest G-10 currency since yesterday’s open it was mainly because of weak oil prices.
WTI oil fell from $72.96/barrel at Monday’s European open to $70.53/b in NY trading today. The International Energy Agency (IEA) cut their Q1 2022 oil demand forecast by 600,000 bpd, blaming travel curbs from the Omicron variant. The tempered the negative comments by noting, “The surge in new COVID-19 cases is expected to temporarily slow, but not upend, the recovery in oil demand that is underway.”
The Bank of Canada and Federal Government announced an updated monetary policy framework yesterday. They said, “The Government and the Bank agree that monetary policy should continue to support maximum sustainable employment, recognizing that maximum sustainable employment is not directly measurable and is determined largely by non-monetary factors that can change through time.”
Targeting an inflation range and a theoretical, unquantifiable employment number provides policymakers with a lot of leeway and ready-made excuses to justify any course of action.
Later today, the Canadian government releases a federal budget update, a copy of which can be found under the “Fantastic fiction” category in your local library.
USDCAD gains above 1.2850 may be limited as the BoC is expected to start hiking rates in March or April, while the Fed may be on hold until May or June.
Technical view: The intraday USDCAD technicals are bullish above1.2760, looking for a break above 1.2860 to target 1.3000. A move below 1.2760 will extend losses to 1.2650 but only a break below the latter level negates the upward pressure.
For today, USDCAD support is at 1.2770 and 1.2710. Resistance is at 1.2850-60 and 1.2890. Today’s Range 1.2760-1.2850
Chart USDCAD daily
Source: Saxo Bank
G-10 FX recap and outlook
FX markets are rangebound but choppy as traders jockey for position ahead of the FOMC, ECB, and BoE meetings this week. The US dollar index (USDX) retreated from resistance in the 96.50 area and dropped to 96.15, although the longer term uptrend is intact.
US PPI rose 0.8% in November while Core PPI rose 0.7%, which is higher than expected and supports views for a hawkish FOMC outcome.
EURUSD drifted lower in Asia, climbed in Europe, and trade sideways in NY, all within a 1.1267-1.1223 band. EURUSD is vulnerable to US dollar reactions following the FOMC meeting, but traders are also cautious ahead of the ECB meeting. The PEPP program is ending but there is a risk that the existing Asset Purchasing Programs are expanded, due to the Omicron variant outbreak.
Germany suspended the process of certifying Russia’s Nord Stream 2 pipeline ostensibly because it was based in Switzerland, not Germany, a requirement of EU law. Officials admitted that Russia’s troop buildup on Ukraine’s border was a factor.
EU Industrial production rose 1.1% m/m. the result was below the forecast of 1.2% m/m but better than September’s -0.22% result.
GBPUSD got an employment report bounce, rising from 1.3193 to 1.3255. The unemployment rate fell to 4.2% in the 3 months ending in October, compared to 4.3% previously. The drop occurred even as the government ended their furlough scheme, underpinned GBPUSD, as it supports a hawkish BoE result on Thursday. The intraday technicals are bullish above 1.3190, looking for a break above 1.3300 to target 1.3430.
USDJPY traded sideways in a 113.48-113.75 range. Prices are weighed down by lower US 10-0year Treasury yields which fell to 1.439% from 1.496% yesterday. October Japanese Industrial Production data rose 1.8% m/m, easily beating the 1.1% forecast.
AUDUSD shrugged off weak a Business Confidence survey, and prices drifted with broad US dollar moves. NZDUSD followed suit, and both currency pairs are awaiting the FOMC for direction.
Chart of the Day: US Dollar Index (USDX)
Source: Bureau of Labor Statistics
FX open, high, low, previous close as of 6:00 am ET
Chart: Saxo Bank
Today’s Bank of China Fix 6.3675, Previous 6.3669
Shanghai Shenzhen CSI 300 fell 0.87%% to 5,049.70
PBoC says CNY Flexibility will strengthen next year
Chart: USDCNY 1 day
Source: Yahoo Finance