USDCAD open: 1.3858, overnight range 1.3853-1.3879 close 1.3877
USDCAD is under pressure from downgraded odds for higher US interest rates, firm oil prices and a spate of better-than-expected economic reports this month, led by the surprisingly robust employment data released August 7.
Inflation accelerated to 3.0% y/y in July from 2.8%, driven largely by gasoline and travel, while CPI excluding gasoline held at 2.2%. The BoC’s core measures were relatively contained, with CPI-median at 2.0% and CPI-trim at 1.9%, suggesting underlying inflation remains close to target.
Friday, Wholesale sales rose 2.8% in June, with real sales up 1.9%, while manufacturing sales increased 0.1% and real sales rose 1.2%. Both reports point to solid underlying demand, with manufacturing unfilled orders reaching a record $131.8 billion, suggesting continued economic momentum.
All together, the trio of economic reports suggest that the BoC will leave interest rates unchanged for longer.
Weaker than expected US economic data has knee-capped rate hike hawks and in turn it has fueled a sharp narrowing of CAD/US 2 year and 10-year interest rate spreads. As a result, leveraged funds covered a lot of short CAD contracts las week. (they are still heavily short).
WTI oil bounced in a 80.85-82.39 range. The US/Iran MOU has expired but Iran said it was meaningless as the Americans have violated the ceasefire numerous times. The White House is claiming that 9 million barrels a day are leaving through the Strait of Hormuz. Unbiased observers claim the number is less than 2.5 m/bd, at best.
USDCAD Technicals
The intraday USDCAD technicals are bearish below 1.3910, and looking for a break below 1.3840, the overnight low, to extend losses toward the 0.618 Fibonacci retracement at 1.3814. A move above 1.3910 targets 1.3940.
Longer term, USDCAD has fallen below both the 200-day moving average at 1.3897 and the 0.5 Fibonacci retracement of the May-June range at 1.3896, which shifts the focus to the 0.618 Fibonacci retracement at 1.3814. A break below that level opens the door to 1.3696, the 0.786 retracement, with the May low of 1.3547 beyond. However, the daily RSI is at deeply oversold levels, warning that the downside may be limited in the short term and leaving room for a corrective bounce toward the 100-day moving average at 1.3948.
For today, USDCAD support is at 1.3840 and 1.3810. Resistance is at 1.3910 and 1.3940.
Today’s expected range is 1.3820-1.3890.
FX Heat Map
FX open high low 6:00 am
No Rate Hike for You
George Costanza is nowhere to be found but nevertheless, the spate of soft US economic data has knocked the odds of a September 16 Fed rate hike down to 30%. That view was reinforced following the Michigan Consumer Sentiment index, which fell to 51 from 55.2 previously.
That slew of soft economic reports has undermined the US dollar, which is trading lower against the G-10 majors to start the week. The US dollar index (DXY) traded defensively in a 99.29-99.52 range overnight.
The US data calendar lacks top tier data this week. The FOMC minutes are due Wednesday.
Taking Stock
Asian markets closed mixed. Japan’s Topix rose 0.51% while Hong Kong’s Hang Seng fell 1.10% and Australia’s ASX 200 lost 0.80%.
As of 7: 20 am, European bourses are mixed to slightly higher. The UK FTSE 100 is up by 0.13%, the German DAX is flat and the French CAC-40 is down 0.14%. S&P 500 futures have squeezed a 0.12% gain, the US 10-year yield is 4.686%, the DXY is 99.47, and gold is $4,403.58.
EURUSD | Range 1.1564-1.1614
EURUSD caught a modest bid in Asia but slipped from its session peak to 1.1595 in early NY. The downgraded odds for a Fed rate hike following a spate of soft economic data gave traders an excuse to buy the single currency. The lack of Eurozone economic data limited the moves.
GBPUSD | Range 1.3531-1.3571
GBPUSD traded firmer due to broad-based US dollar weakness. UK House prices fell 2.0% in August compared to -1.0% in July. Traders are biding their time ahead of this week’s UK economic data beginning with the employment report tomorrow. CPI and PPI follow on Wednesday.
USDJPY | Range 158.85-159.40
USDJPY is bid on the back of lowered odds for a Fed rate hike, despite the risk of more intervention and the 80% odds that the BoJ will raise rates in September. That’s because Q2 GDP rose just 0.3% q/q, which was weaker than the forecast and the previous reading of 0.5% q/q, which suggests a reduced urgency for higher rates.
AUDUSD | Range 0.7084-0.7130
AUDUSD is trading at the top of its overnight range in early NY supported by the generally weaker US dollar and the RBA’s hawkish bias.
USDMXN | Range 16.9969-17.0313
USDMXN is consolidating last week’s losses fueled by soft US data and firm Mexican interest rates. However, the ongoing USMCA talks are acting as a drag on gains.
CHINA
- PBoC Fix: 6.7873 vs exp. 6.7382 (prev. 6.7878).
- Shanghai Shenzhen CSI 300 rose 1.61% to 4,741.10
China is hosting the third APEC Senior Officials’ Meeting in Dalian from August 17 to 28, with over 2,300 delegates expected.
China’s economic data came in well below expectations, with retail sales growth plunging to just 0.6% year-over-year and industrial output slowing to 4.5%.
Sources: Investing.com, Bloomberg, Reuters, Yahoo Finance, US Census Bureau, Trading Economics, Tradingview
