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September 5, 2023
- US 10-year Treasury yield surges to 4.22%.
- China Services PMI disappoints.
- USD rallies across the board-AUD underperforms.
FX at a Glance
Source: IFXA/RP
USDCAD Snapshot: open: 1.3654-48, range since Friday: 1.3571-1.3670, close 1.3594
Canada was on fire in August, but it was forests that were burning, not the economy. Canada’s Q2 GDP was sharply weaker than expected, with the economy shrinking by 0.2% compared to the forecast of 1.2% growth. The results raise the risk of a recession.
US nonfarm payrolls rose more than expected, but the news was more than offset by downward revisions to the two previous months, which suggests the Fed will leave rates unchanged this month.
FX markets reacted rather benignly to the data but eagerly bought US dollars after the US 10-year yield climbed from 4.09% pre-NFP to close at 4.11%. The 10-year yield continued to rise yesterday and overnight and is at 4.227% in NY today, which fueled the USDCAD gains overnight.
Wednesday’s Bank of Canada monetary policy meeting is a statement-only affair, but Governor Tiff Macklem will explain the decision (expected to be unchanged) on Thursday. He is sure to be asked about the CIBC study that claims Statistics Canada vastly under-reported the number of non-permanent residents, which has negative implications for GDP calculations. It also suggests that the housing affordability crisis is far worse than perceived. Perhaps Stats Canada employees should be hitting the books along with students.
WTI oil rose from $84.30/b to $86.05 on Friday, then consolidated the gains in a $85.06-$86.08/b range overnight. Prices are underpinned by concerns that OPEC will announce new production cuts or extend existing reductions at its meeting today. Also, there are reports hedge funds are loading up on crude in anticipation of $100.00/b later this year or early in 2024.
USDCAD Technicals
The intraday USDCAD technicals are bullish while trading above 1.3540, looking for a decisive break above 1.3680 to target 1.4000.
The break above 1.3270 on August 8 started a one-way ride higher which has achieved the 78.6% Fibonacci retracement level in the 1.3670-80 area and is very overbought on a 4-hour chart which suggests USDCAD is vulnerable to a correction, but the uptrend will remain intact above 1.3520.
For today, USDCAD support is at 1.3610 and 1.3570. Resistance is at 1.3680 and 1.3720. Today’s range 1.3590-1.3690.
Chart: USDCAD daily
Source: Investing.com
G-10 FX recap
Global risk sentiment soured overnight thanks to disappointing Chinese Services PMI data and nuclear action threats from Russia, while surging US Treasury yields propelled the US dollar higher. A cluster of nutbars will be meeting in Russia when North Korea’s Kim Jong Un visits Putin in Moscow.
European equity indexes are trading mixed and quietly, with little change from yesterday, while S&P 500 futures are down 0.11%.
EURUSD is at the bottom of its 1.0727-1.0799 range due to both higher US Treasury yields, and the ongoing outperformance of the US economy compared to the Eurozone. News that Producer prices fell 0.5% in July which is a tick higher than the 0.4% level in June was not a factor. Traders are looking ahead to Wednesday’s Retail Sales data (forecast -1.2%).
GBPUSD fell from 1.2632 to 1.2529 due to widespread US dollar demand due to the sharp rise in the US 10-year Treasury yield from 4.04% on Friday to 4.226% today. GBPUSD is also suffering from concerns that the BoE is at or close to its peak rate.
USDJPY rallied to 147.49 in NY from an overnight low of 146.40 due sharply higher US Treasury yields. Services PMI at 54.3 was as forecast and ignored.
AUDUSD is at the bottom of its 0.6358-0.6465 range after the Reserve Bank of Australia left rates unchanged at 4.1%. The statement is somewhat hawkish, but analysts believe the RBA has finished hiking rates.
US factory orders data are on tap.
Top of Form
FX high, low, open
Source: Investing.com
China Snapshot
Bank of China Fix: today 7.1783, expected 7.2703, previous 7.1786.
Shanghai Shenzhen CSI 300 fell 0.74% to 3820.22.
Caixin Service PMI fell 51.8 in August (July 54.1). the results are seen as more evidence China’s economy is slowing.
Real estate developer country Garden made a $22.5 million coupon payment and avoided a default.
Chart: USDCNY 1 month
Chart 1 month
Source: Bloomberg
