Source: Pixabay      

December 16, 2021

  • Relief rally in global markets following FOMC
  • Bank of England hikes rates 0.25%,  ECB rates unchanged
  • Canadian dollar rebounds, gains 1.1% since Thursday’s peak

FX at a Glance

Source: IFXA Ltd/RP

USDCAD Snapshot   Open 1.2775-79, Overnight Range 1.2767-1.2856, Previous close 1.2833

USDCAD jumped to 1.2932 when the FOMC statement was released then retreated during Fed chair Powell’s press conference.  The retreat became a rout, and USDCAD continued to slide overnight and opened in NY at the session low.

Traders ignored Canada CPI rising 4.7% y/y, in November.  It was as expected but still close to a 30 year peak. BoC Governor Macklem didn’t offer any insight in his speech yesterday, merely rehashing his remarks from his press conference on the new monetary policy framework. Nevertheless, he did repeat that he expected inflation to fall in the second half of 2022.

The USDCAD decline is all due to traders unwinding pre-FOMC positions as the Fed, although turning hawkish, failed to indicate that rate hikes would occur any time soon.

WTI oil rallied from $69.45/barrel yesterday to $71.70/b in NY today, due to broad US dollar weakness, post-FOMC, and a 4.58 million barrel drop in US crude inventories last week.  That gain helped to fuel USDCAD selling.

Nevertheless, USDCAD is still 0.80% higher from where it opened a week ago, in sharp contrast to AUD and NZD.

There are not any Canadian economic reports of note today.

Technical view:  The intraday USDCAD technicals turned bearish with the break below the minor uptrend line at 1.2800, looking for a test of the October uptrend line 1.2630.  However, supports at 1.2770 and 1.2730 are guarding that line.

For today, USDCAD support is at 1.2770 and 1.2730.  Resistance is at 1.2830 and 1.2870.  Today’s Range 1.2740-1.2820.

Chart USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

The Fed turns hawkish, and markets are relieved.

US equity futures point to a positive open on Wall Street.  Oil and gold prices are firmer, while US 10-year Treasury yields are steady at 1.437%.

US weekly jobless claims climbed to 206,000 from the upwardly revised 188,000 result last week.  The Philadelphia Fed Manufacturing Survey was weaker than expected falling to 15.4 from 39.  Building Permits and Housing starts were higher than expected.  FX traders ignored the news and focussed on the ECB press conference.

Turkey’s economic savant, President Recep Erdogan, continues to demonstrate the damage a poorly educated megalomaniac can do to a country’s economy. He fired two deputy finance ministers ahead of the CBRT rate decision.  USDTYRY jumped to 15.6385 from 14.8061 on the news.

Norges Bank, Norway’s central bank, thumbed its nose at rising Omicron cases and hiked interest rates by 0.25% to 0.50%.  They justified the move because of falling unemployment levels in an economy running at full capacity.

The Swiss National Bank (SNB) didn’t surprise anyone.  They left their ultra-easy monetary policy unchanged, and the overnight rate remains at -0.75%.

The ECB only wishes it had Norway’s problems. EURUSD dropped to 1.1220 and jumped to 1.1298 around the FOMC decision.  Prices accelerated higher in NY, reaching 1.1349 after the ECB left rates unchanged but announced a “cautious” taper.  The ECB plans to end the PEPP program by March 2022 and announced tweaks to its Asset Purchase Program.  EURUSD is supported by the improved risk tone.  Eurozone PMI data was weaker than expected, but not a factor for traders.

The Bank of England raised the bank rate 0.25% with one voter dissenting and left the quantitative easing program unchanged. GBPUSD soared on the news rising from 1.3262 to 1.3354.  Traders may have liked the news but many analysts are complaining that raising rates in the face of rising Omicron cases, soft economic data is not very prudent.

USDJPY joined the post-FOMC short squeeze and climbed from 113.65 yesterday morning to 114.23 in NY. In November, Japanese exports and imports jumped 20.5% and 43.5% y/y.  However, gains were limited by the lack of upside in US Treasury yields.

AUDUSD rallied from the FOMC low of 0.7092 to 0.7210 in NY, boosted by the improved risk tone and robust economic data including blow-out domestic employment report (employment change 366,100 vs forecast 200,000). RBA Governor Philip Lowe repeated that he didn’t see a rate hike in 2022 but admitted policymakers discussed tapering bond purchases starting in February.

Chart of the Day:  GBPUSD 30 minute

Source: Bureau of Labor Statistics

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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3637, Previous 6.3716

Shanghai Shenzhen CSI 300 rose 0.58%% to 5,034.73

Chart: USDCNY 1 month

Source: Yahoo Finance