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March 13, 2023

  • Bond prices soar-10-year Treasury yield collapses to 3.418%.
  • Will Fed pause next week? Goldman Sachs thinks so.
  • US dollar plunges on repricing of Fed terminal rate.

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3765-69, overnight range 1.3714-1.3824, close 1.3824

USDCAD dropped from the opening bell in a thin Asian trading session but found a floor just above the previous resistance area that had capped gains since November.

The stronger than expected Canadian employment report (job gains 21,000) has been forgotten in the wake of the collapse of Silicon Valley Bank and the US 10-year Treasury yield.  Sharply narrowing CAD/US interest rate spreads fueled USDCAD losses overnight while falling S&P 500 futures are limiting downside moves.

Today’s focus is all about contagion fears from the SVB collapse and Treasury yields.

There is no Canadian data today.

USDCAD Technical Outlook

The intraday USDCAD technicals are bearish below 1.3810, looking for a drop below 1.3710 to extend losses to 1.3660.  A break above 1.3810 targets 1.3900.

Longer term, the uptrend line from February is intact above 1.3660 with additional support implied at 1.3660 was strong resistance previously.  A break below 1.3660 targets 1.3590 then 1.3530.

For today, USDCAD support is at 1.3730 and 1.3710.  Resistance is at 1.3810 and 1.3860.

Today’s range 1.3750-1.3850.

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

US policymakers at the Fed, Federal Deposit Insurance Corporation, and the US Treasury announced a bail-out of a kind for Silicon Valley Bank (SVG). They announced that depositors will have access to all their money as of today and that no losses will be borne by taxpayers.

 “Keep bailing, the boat is still sinking.” 

The move was meant to restore investor confidence. It didn’t work. Where there is one cockroach there are others.

Shares in First Republic Bank dropped 60% in pre-market trading even after the Bank tweeted they further strengthened and diversified liquidity positions. There are other questions as well such as what is the source of the funds for the bail-out if taxpayers are not on the hook? Magic money tree? Lotto?

US nonfarm payrolls exacerbated the bond demand. Despite a robust NFP gain of 311,000 jobs (forecast 211,0900), downward revisions to the prior two monthly reports, and an uptick in the unemployment rate led some analysts to downgrade their March 22 rate hike forecast to 25 bps from 50bps, post-Powell’s testimony.

Goldman Sachs analysts do not expect the Fed to raise rates at next weeks meeting. They still think the Fed will hike rates by 25 bps in May, June and July, and now believe the Fed terminal rate is 5.25-5.5%.

European bourses are on the defensive led by a 2.70% drop in the German Dax index. S&P 500 futures flipped from slightly positive to falling 0.45%.

The US 10-year yield dropped from 4.01% March 9 to 3.464% today due to safe-haven demand.

Gold (XAUUSD) rallied $90 to $1902.70 today, from Thursday’s low of $1812.70, a 5.0% gain, in a safe-haven stampede. A sustained break above $1900.00 targets $1950.00.

EURUSD chopped about in a 1.0644-1.0736 band. Prices are underpinned by a narrowing in EU and US interest rate spreads which were exacerbated by Goldman’s forecast for the Fed to put the brakes on rate hikes next week. Meanwhile the ECB is universally expected to raise rates by 50 bps on Thursday.  

GBPUSD traded with a modest bid in a 1.2042-1.2140 band as UK/US interest rate differentials narrowed. Prices are closely tracking US treasury yields.

USDJPY sank to 132.30 in early NY from the Asian peak of 135.05 weighed down by sliding US Treasury yields.  The low was hit when the 10-year Treasury yield touched 3.418%.

AUDUSD is trading with a bid in a 0.6591-0.6677 range due to broad US dollar weakness.

There US data calendar is empty.

FX open, high, low, previous close as of 6:00 am ET

Source: Saxo Bank

China Snapshot

Bank of China Fix:  6.9375, Previous: 6.9655

Shanghai Shenzhen CSI 300 rose 1.09% to 4008.69.

Xi Jinping rumoured to be visiting Putin next week.

Chart: USDCNY 1 month

Source: Bloomberg