Photo: Bing AI

October 3, 2023

  • 10-year Treasury yield rises over 4.70%
  • RBA leaves rates ucnhanged
  • US dollar extends Monday’s rally.

FX at a Glance

Source: IFXA/RP

USDCAD Snapshot:  open: 1.3716-20, overnight range: 1.3662-1.3729, close 1.3676

USDCAD is a victim of collateral damage.  Yesterday’s rally, which continued overnight is because of steadily rising US Treasury yields. The USDCAD gains were exacerbated by falling commodity prices. Gold(XAUUSD) has dropped 6.4% since September 20, and the Thomson Reuters CRB index is down 2.6% in the same period.

The rising risk of a US recession and high US interest rates offset oil supply concerns stemming from hopes of increased demand and reduced Opec production.  WTI chopped about in an $87.77-$89.00/b range with prices at the top of that band in NY.

Canada is front and center in world news reports after India expelled 41 Canadian diplomats, giving them until October 10 to leave the country. The news had zero impact on FX trading

USDCAD direction is tied to US Treasury yield movements and overall US dollar sentiment.

USDCAD Technicals

The intraday USDCAD technicals are bullish.  The move above the 1.3640-60 area kicked off a new leg of rally with a move above 1.3770 targeting 1.3860. The 1.4000 area will be sticky, but a decisive breach would suggest a new 1.3950-1.4350 trading range.  A break below 1.3670 would extend losses to 1.3620.

For today, USDCAD support is at 1.3670 and 1.3620.  Resistance is at 1.3730 and 1.3770. Todays Range 1.36650-1.3750.

Chart: USDCAD monthly


G-10 FX recap

Bond traders rule! These self-described masters of the universe have wholeheartedly embraced the Fed’s interest rate outlook, as shown in the FOMC’s Summary of Projections. Their mantra is “higher rates for longer,” while believing that a recession is almost a given. To that end, they propelled the US 10-year Treasury yield to 4.731% this morning, which also fueled widespread US dollar demand.

Meanwhile, Fed officials did their best to muddy the rate outlook yesterday. The Vice Chair for Supervision, Michael Barr, said that US rates are likely at, or very near, a level that is sufficiently restrictive. Non-voter Cleveland Fed President Loretta Mester disagreed, saying, the Fed needs one more rate hike before leaving them at higher levels for some time.

EURUSD bounced in a narrow 1.0460-1.0494 band as investors appear to have an insatiable demand for US dollars. The outlook for higher US rates, which will remain elevated for at least 16 months, is at odds with the ECB grappling with a slowing economy and talk that the ECB may soon be cutting rates. However, yesterday ECB Governing Council Member Louis De Guindos dismissed that notion, warning that talk of rate cuts is premature. The EURUSD technicals are bearish, with a break below 1.0430 targeting 1.0230.

GBPUSD is consolidating losses in a 1.2052-1.2097 range as it continues to suffer from the contrasting monetary policies of the Bank of England (dovish) and the Fed (hawkish). It wasn’t that long ago when global financial markets worried about the “PIGS” (Portugal, Ireland, Greece, and Spain) and their high government debt, budget deficits, and economic weakness. Greece was the worst of all. Today, bond traders are demanding a bigger premium for UK 5-year bonds than those of Greece. How the mighty have fallen. The GBPUSD technicals are bearish below 1.2270, looking for a break of 1.2000 to extend losses to 1.1830.

USDJPY teased the 150.00 level, with prices rising from 149.66 to 149.99 due to US 10-year Treasury yields reaching levels last seen in 2008. Finance Minister Shunichi Suzuki provided the usual threats and bluster, saying, “It was important for currencies to move stably, reflecting economic fundamentals. We will be fully prepared to respond with a high sense of urgency.”

AUDUSD fell from 0.6371 to 0.6305 due to broad-based US dollar demand and no surprise from the Reserve Bank of Australia. The RBA left the OCR rate and the monetary policy statement unchanged.

US JOLTS job openings are expected to fall to 8.8 million from 8.827 million.

FX high, low, open


China Snapshot

Chinese markets are closed for Golden Week holidays.

Bank of China Fix: closed.  previous 7.1798.

Shanghai Shenzhen CSI 300 closed for Golden Week.

Chart: USDCNH (offshore)

Source: Bloomberg