April 13, 2022

  • RBNZ hikes rates 0.50%, issues dovish guidance
  • UK inflation rises 7.0% y/y in March, higher than expected.
  • US dollar opens mixed, NZD underperforms

FX change at a glance: 24 hours

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2647-51, overnight range 1.2613-1.2663 close 1.2643

USDCAD traders do not appear to be concerned that the Bank of Canada will hike rates 0.50% today or aggressively ramp up the pace of quantitative tightening. Perhaps they believe policymakers will follow the lead of their RBNZ counterparts. The RBNZ said they preferred to front-load rate hikes now rather than later “to head off rising inflation expectations and minimise any unnecessary volatility in output, interest rates, and the exchange rate in the future.”

Bank of Canada monetary policy rarely seen as trail-blazing. Often time’s BoC policy statements read like it was “cut and pasted” from other central bank writings. The war in Ukraine and fears of high oil prices derailing global growth give Tiff Macklem and company the perfect excuse to deliver a “dovish” hike.

Canadian inflation at 5.7% y/y in February is well below the US March, 8.5% y/y level reported yesterday. Maybe the BoC has some breathing room. If so, USDCAD has a date with 1.2800.

On the other hand, Deputy Governor Sharon Kozicki said that the BoC’s “primary concern was inflation.” She then went on to say “inflation in Canada is too high, labour markets are tight and there is considerable momentum in demand.” 

Do those comments mean a 0.75% rate hike is in the cards?  That would be proof of the BoC’s “seriousness” in combating inflation, and would drive USDCAD to 1.2450.

WTI oil prices climbed to $102.10 from $99.92. News the International Energy Agency (IEA) lowered its 2022 global oil demand forecast by 260,000 b/pd, was offset by their forecast that Russian oil production would drop by 1.5 million b/pd in April and another 3.0 m/bpd in May.

USDCAD is taking direction from S&P futures which are giving back overnight gains driving USDCAD to 1.2662 in NY trading.

The BoC Monetary Policy Report press conference begins at 11:15 am EDT.

USDCAD technical outlook   

The intraday USDCAD technicals are bullish. The uptrend channel that began on April 5 with the break above 1.2470 guides prices higher inside a 1.2600-1.2700 band. Fibonacci retracement suggests the move above 1.2590 (38.2% of the Mar. 8-Apr. 5 range) will extend gains to 1.2710 and then 1.2780. A decisive break below 1.2590 negates the uptrend and shifts the focus to 1.2490.

For today, USDCAD support is at 1.2620 and 1.2580.  Resistance is at 1.2660 and 1.2690.  Today’s Range 1.2590-1.2690

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

FX markets are taking direction from Wall Street, and equity traders are skittish.  Russian President Vladimir Putin made a mockery of peace talks when he vowed to achieve his objectives in Ukraine, which helped drive stocks lower yesterday.

Japan’s Nikkei 225 and Australia’s ASX 200 indexes closed with gains in Asia.  The German Dax is down 0.90%, dragging European indexes lower, while the UK FTSE 100 index is unchanged.  US company quarterly earnings are the focus today, and S&P and DJIA futures are pointing to a positive open on Wall Street.

Risk sentiment has also improved due to speculation that US inflation (which hit 8.5% y/y in March) has peaked.  That’s because core inflation ticked lower.

The US 10-year yield Treasury yield retreated from its 2.832% peak yesterday and traded in a 2.72-2.78% range overnight.  The drop in yields improved risk sentiment.

Gold prices extended its April rally and have risen from $1914.33 on April 6 to $1980.04 in NY today.  Prices are supported by safe-haven demand from Russian aggression and by the latest talk that inflation has peaked.

EURUSD traded with a negative bias in a 1.0812-1.0844 range.  Prices continue to suffer from economic growth concerns from the invasion of Ukraine and more hawkish Fed speak from Vice Chair Brainard and St Louis Fed President Bullard yesterday.  EURUSD has major support in the 1.0800 which if it holds, suggests a rebound to 1.1120.  However, a decisive break below 1.0800 targets 1.0640.

GBPUSD chopped about in 1.2974-1.3025 band.  UK inflation hit 7.0% in March and Producer Prices also surged.  UK Prime Minister Boris Johnson apologizes for breaking the COIVD rules that he said he didn’t break but avoided claiming his transgression was a teaching moment for all British citizens.

USDJPY jumped to 126.32 from 125.36, with the US inflation print underpinning prices.  Traders ignored a rash of Japanese officials saying they were keeping a close watch on yen.

NZDUSD churned in a 0.6775-0.6900 range following the RBNZ monetary policy meeting.  The central bank hiked rates 0.50% which surprised about 70% of analysts, then delivered was considered a dovish statement.  They said they prefer to front-load rate hikes to avoid large rate hikes later.

US PPI data is on tap.

Chart: Gold (XAUUSD) Daily

Source: Saxo Bank

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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3752 (Previous Fix 6.3795)

Shanghai Shenzhen CSI 300 fell 0.96% to 4,139.74

China February trade surplus narrows to $47.36 billion (forecast $22.4b) January $115.95 b

Chart: China hourly, MTD

Source: Yahoo Finance