August 16, 2024

• RBA and RBNZ Governors have opposing interest rate views.
• Market action likely to be subdued heading into the weekend.
• US dollar is trading defensively but with limited losses.

FX at a Glance

Source: IFXA/RP

USDCAD open 1.3720, overnight range 1.3715-1.3736, previous close 1.3734

USDCAD is adrift and looking for direction. The currency pair cannot get any meaningful traction in any direction and the 82.8 bp 10-year interest rate differential in favour of the US is fully reflected in the exchange rate.

Traders are looking ahead to next week’s Canadian inflation and retail sales reports which may not have much of a lasting impact as it is the Fed that is driving USDCAD. Canadian foreign Portfolio investment is expected to show a decline to $15.9 billion from $20.89 billion, which is further evidence that government business policies is deterring foreign investment.

WTI traded in a 75.98-78.07 range due to fading fears of a US recession which suggests higher demand for crude.

USDCAD Technicals

The intraday USDCAD technicals are modestly bullish and looking for a decisive break above 1.3730 to negate the week-long downtrend channel and shift the focus to the 1.3850 zone.

USDCAD remains just below the mid-point of the 2 standard deviations Bollinger Bands at 1.3780 and while below this level, the targets is 1.3678. The RSI are neutral.

For today, USDCAD support is at 1.3705 and 1.3690.  Resistance is at 1.3750 and 1.3780.  Today’s Range 1.3710-1.3770

Chart: USDCAD 4 hour

Source: DailyFX

Fear and Loving in Las Vegas (and Everywhere Else)

Just two weeks ago, it felt like the world was ending. Global stock markets were in a nosedive as the long-overdue correction hit the “Magnificent 7” tech stocks hard. Financial pundits were fuming, convinced that the Fed had bungled things yet again, with recession alarms blaring. Critics argued that the FOMC had missed the boat on inflation, and now Jerome Powell’s hyper-cautious approach could drag the economy into recession. The nonfarm payrolls report didn’t help, showing higher unemployment and lackluster job gains. It was pure chaos, with traders screaming, “The sky is falling!”

Then, apparently, those traders went on vacation, and a more optimistic crew took over. Sentiment perked up, perhaps bolstered by the beefed-up presence of the U.S. Navy near Iran, which seemed to deter any immediate attacks on Israel (though let’s not rule anything out just yet). A sprinkling of better-than-expected data, like the ISM services PMI, a dip in weekly jobless claims, and a solid U.S. retail sales report, all suggested that recession fears were overblown.

Taking Time to Smell the Roses

It’s been a good week for stocks, which means today might see some profit-taking. Weaker-than-expected Michigan Consumer Sentiment or Consumer Expectations could be the tipping point. And let’s not forget, Iran might still feel the need to show strength to its terrorist puppets with an attack on Israel.

Equities

Soaring Japanese stocks lifted Asian markets sharply. Japan’s Topix rose 2.99%, and Australia’s ASX 200 gained 1.34%. European traders were a bit more subdued, but the German DAX is up 0.74%. S&P 500 futures are flat, and the 10-year U.S. Treasury yield slipped to 3.886% from 3.935%.

EURUSD

EURUSD is stuck in a 1.0971-1.0991 range, with no significant Eurozone data to shake things up. Expect prices to stay in the 1.0950-1.1000 range until the 10 a.m. EDT option expiry window, where $2.25 billion of 1.0950-60 strikes and $2.7 billion of 1.1000 strikes are set to roll off.

GBPUSD

GBPUSD is trading with a bullish bias in a 1.2852-1.2909 range, boosted by a 0.5% rise in UK retail sales for July, compared to June’s 0.8% drop, and a slightly weaker U.S. dollar overnight.

USDJPY

USDJPY consolidated yesterday’s gains in a 148.45-149.35 range overnight. Selling pressure came from the surge in Japanese stocks and possibly from renewed chatter about the yen carry trade.

AUDUSD and NZDUSD

AUDUSD rallied from 0.6607 to 0.6642 after RBA Governor Michele Bullock’s somewhat hawkish comments about the Australian interest rate outlook. She ruled out near-term rate cuts, noting that while markets are eyeing a rate cut before year-end, the probability is low. Prices edged lower into the New York open, tracking soft U.S. equity futures.

NZDUSD traded in a 0.5978-0.6028 range, buoyed by improved global risk sentiment. RBNZ Governor Adrian Orr hinted that yesterday’s 0.25% rate cut might be followed by more, albeit at a “careful and measured pace.”

USDMXN

USDMXN traded in a 18.6227-18.6696 range, returning to levels seen earlier this month. The improved risk sentiment, driven by easing U.S. recession fears, fueled the move lower.

Bitcoin (BTCUSD)

BTCUSD climbed from 56,220 in Asia to 59,909 in early New York, riding the wave of positive risk sentiment. The technical picture remains bearish below 61,200.

FX high, low, open (as of 6:00 am ET)

Source: Investing.com

China Snapshot

PBoC fix: 7.1464 vs exp. 7.1739 (prev. 7.1399).

Shanghai Shenzhen CSI 300 rose 0.11% to 3345.63

Chart: USDCNY and USDCNH

Source: Investing.com