June 19, 2023
- Fed Chair Powell Testifies to Congress Wednesday and Thursday.
- China plans stimulus package “soon.”
- US dollar consolidating losses.
FX at a glance
Source: IFXA Ltd/
USDCAD Snapshot: open 1.3204-08, overnight range 1.3181-1.3227, close 1.3198
USDCAD is consolidating last week’s losses in a bearish fundamental and technical environment. The BoC’s surprise rate hike, speculation that the Fed is close to its terminal rate, and stale long USDCAD positions exacerbated selling pressures, even as WTI oil prices appear to have found a base.
Nevertheless, USDCAD direction is mostly driven by US-centric data and developments with domestic factors only playing a minor role.
WTI oil prices climbed steadily since last Wednesday, rising from $67.95 to $71.62 overnight. The gains are due to the anticipated Chinese stimulus package, supported by Saudi Arabia’s unilateral 1 million barrel production cut.
Canada Industrial Product and Raw Material Price indexes are ahead.
USDCAD Technical Outlook
The USDCAD technicals are bearish. The break below 1.3270 then 1.3230 sets the stage for a straight-shot down to support in the 1.2990-1.3000 level. It is not unrealistic. On September 13, 2022, USDCAD surged from 1.2950 to 1.3170 after a hotter than expected US inflation report. The belief that the Fed tightening cycle is all but over could see a similar move, except to the downside.
The long term uptrend line at 1.2990 should limit losses initially.
For today, USDCAD support is at 1.3160. Resistance is at 1.3120 and 1.3230
Today’s range 1.3150-1.3240
Chart: USDCAD weekly
Source: Saxo Bank
G-10 FX recap and outlook
Global traders are slow off the mark today, largely due to the US holiday, but it gives them time to mull over this weekend’s developments.
China’s Emperor Xi Jinping got off his throne to meet with US Secretary of State Anthony Blinken and, according to Bloomberg, said, “I hope that through this visit, Mr. Secretary, you will make more positive contributions to stabilizing China-US relations.”
Jinping’s Covid-Zero blunder did more damage to China’s economy than all of the US trade tariffs and sanctions, and officials are looking at ways to jumpstart economic growth. Traders are waiting for Beijing to announce another round of massive stimulus, including interest rate cuts, which is expected this week.
Fed officials did their part to keep reinforcing the hawkish outlook from last week’s FOMC meeting. Governor (and voter) Christopher Waller noted that “inflation is just not moving and that’s going to require, probably, some more tightening to get that going down.”
Fellow voting member, Chicago Fed President Austan Goolsbee, was a tad less hawkish, saying that there was conflicting data about whether the Fed has been “too hot or done enough,” so policymakers will play it by ear.
Fed Chair Powell’s Congressional testimony (Wednesday and Thursday) is unlikely to shed any new light on the path of US interest rates due to a lack of fresh economic data since the FOMC meeting.
Asian equity markets closed on a mixed note. Japan’s Nikkei 225 index lost 1.0%, while Australia’s ASX 200 gained 0.60%. European bourses are in negative territory led by a 0.52% drop in the German DAX index.
EURUSD drifted aimlessly in a 1.0918-1.0945 range, with the single currency continuing to benefit from speculation that the Fed only has one more rate hike on the table, while the ECB remains in tightening mode. The short-term EURUSD technicals are bullish while prices are above 1.0800, which is being guarded by support at 1.0850.
GBPUSD drifted in a 1.2805-1.2836 range ahead of Thursday’s Bank of England monetary policy meeting. Recent UK data, including the robust employment report last week, gave rise to speculation of a 50 bp rate hike, unless Wednesday’s inflation report is weaker than expected. The short-term GBPUSD technicals are bullish and looking for gains to 1.3000.
USDJPY traded with a bullish bias, rising from 141.45 to 142.00 due to the hawkish Fed outlook and the dovish Bank of Japan monetary policy stance.
AUDUSD consolidated last week’s gains in a 0.6835-0.6882 band. Broad US dollar weakness, due to hopes that the Fed is close to ending its tightening cycle, combined with anticipation of an aggressive Chinese economic stimulus plan, is supporting prices. The minutes from the Reserve Bank of Australia meeting of June 4 are due tomorrow.
FX open, high, low, previous close as of 6:00 am ET
Bank of China Fix: 7.1201, previous 7.1289.
Shanghai Shenzhen CSI 300 fell 0.82% to 3930.91.
Chart: USDCNY 6 month