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October 7, 2022

  • US gained 263,000 Jobs, Canada, 21,100
  • Canada closed Monday for Thanksgiving
  • US dollar climbs post-FOMC

FX at a glance: 

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3706-10, overnight range 1.3707-1.3759, close 1.3747

Bank of Canada Governor Tiff Macklem didn’t do the Canadian dollar any favours with a speech in Halifax yesterday. Central bankers are usually loathe to comment on the domestic exchange rate because when they do, traders do bad things to the currency.

Perhaps Mr Macklem thought “Things are different this time.” 

In his speech he said that easing pressures on global prices won’t necessarily lower inflation because of the recent depreciation in the Canadian dollar making imports more expensive.

Mr Macklem responded to a question about whether the depreciating currency would influence monetary policy decisions with the stock answer “I won’t predict the Canadian dollar.”  Then he did-sort of.

He added “Normally when we raise interest rates the Canadian dollar appreciates. That does some of our work for us. We’re not getting that this time. What that means is that other things equal there is going to be more to do on interest rates. We are going to take those exchange rate movements into account going forward in terms of what we need to do on interest rates.”

That is a rookie mistake. Traders are now wondering how high will USDCAD go before the BoC intervenes in the currency or aggressively hikes rates further, or both.

Canada added 21,100 jobs which was close enough to expectations to be ignored.

USDCAD Technical outlook

USDCAD is bid after unequivocally rejecting attempts to take out support at 1.3500. The subsequent uptrend is intact while prices are above 1.3650, a level guarded by the break of resistance at 1.3680.

For today, USDCAD support is at 1.3680 and 1.36400.  Resistance is at 1.3760 and 1.3810. Today’s range: 1.3660-1.3760

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

Can you say “indecisive?”  FX traders can, and were, in a choppy but uneventful overnight session.

The notion of a Fed pivot has been trashed, tossed to the ground, and then stomped on by a series of Fed policy makers since Tuesday afternoon and traders are getting the message. Today’s NFP data helped

The US gained 263,000 jobs, average hourly earnings were unchanged at 0.3%, and the unemployment rate dipped to 3.5% from 3.7%.

The results will not dissuade the Fed from another 75 bp rate hike November 2.  Bond Traders agree.  The US 10-year yield rose above the overnight peak of 3.859% to 3.877% immediately afterwards.

The Fed pivot story should be put to rest.  Fed officials agree. Yesterday, Minneapolis Fed President Neal Kashkari said, “Until I see some evidence that underlying inflation has solidly peaked and is hopefully headed back down, I’m not ready to declare a pause. I think we’re quite a ways away from a pause.”

Overnight, Asian equity markets retreated with Japan’s Nikkei dropping 0.71% while Australia’s ASX 200 fell 0.80%. Hong Kong’s Hang Seng index lost 1.51%.

European bourses fell post NFP as did S&P 500 and DJIA futures. WTI oil prices added to overnight gains while gold prices dipped. 

EURUSD slid steadily yesterday, falling from 0.9926 to close at 0.9792 as Fed pivot hopes evaporated. Prices traded sideways in a 0.9880-0.9913 range overnight the dropped to 0.9751 after the US jobs data. Weaker than expected German data not helping sentiment. August Retail Sales fell l-1.3% m/m compared to the forecast of -1.0%, and Industrial production fell 0.8%, seasonally adjusted. The German economic outlook got worse after Opec manipulated prices higher.

GBPUSD plunged from 1.1382 Thursday to 1.1159 by the NY close, then traded in a 1.1117-1.1224 range overnight. The currency is getting hammered by renewed pressure in the Gilt market and broad US dollar demand. British households are being warned by power companies about the prospect of widespread blackouts for up to three hours on a shortfall of energy.

USDJPY retreated from 145.13 to 144.73 for no other reason than the fear of BoJ intervention. Prices revisited the overnight peak after the US 10-year yield climbed to 3.877%.

AUDUSD followed the other majors lower yesterday and traded in a 0.6381-0.6431 range overnight. Some analysts suggest AUDUSD has further downside due to the RBA’s decision to slow the pace of rate hikes.

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix: Closed:  previous 7.0998

Shanghai Shenzhen CSI 300 closed

NOTE:  Chinese markets closed for Golden Week.

Chart: USDCNH (offshore) 1 month

Source: Saxo Bank