February 6, 2023

  • NFP data and fall-out from Chinese spy balloon weigh on risk sentiment.
  • US 10-year Treasury yield climbs to 3.627%
  • US dollar surged Friday, consolidated gains overnight.

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3439-44, overnight range 1.3399-1.3444, close 1.3402

USDDCAD rallied following the US NFP and ISM Services data and never looked back. Prices rallied from 1.3346 at Friday’s NY open to 1.3446 in NY today, supported by renewed concerns that the Fed will rates more aggressively and for longer, than previously expected. Prices have since eased to 1.3418.

Bank of Canada Governor Tiff Macklem speaks about “How monetary policy works” in Quebec City on Tuesday which is followed by the first ever release of the monetary policy minutes (Summary of Deliberations).  It’s hard to think the minutes will offer anything different from Mr Macklem’s speech.

WTI oil prices peaked at $77.95/barrel Friday then consolidated the post NFP losses in a $73.18/b-$74.07/b range overnight.  The IEA said that the cap on Russian oil stabilized the market and cut Russian oil and gas revenue by 30%. He expects that Chinese demand, especially for jet fuel, will put upward pressure on prices.  Meanwhile Goldman Sachs commodity analyst Jeffrey Currie warns that a lack of oil production investment could drive prices above $100.00/b in 2024.

Canada’s Ivey PMI index is due today.

USDCAD Technical Outlook

The intraday USDCAD technicals are neutral inside a 1.3260-1.3460 range.  A topside break suggests a retest of resistance in the 1.3700 area.  A downside break sets up a move to 1.3000.

Longer term, Bollinger bands and RSI analysis suggests USDCAD is topping near 1.3484 with a break below 1.3380extending losses to 1.3260.

For today, USDCAD support is at 1.3380 and 1.3340.  Resistance is at 1.3450 and 1.3490

Today’s range 1.3370-1.3450

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

Traders are continuing to evaluate Friday’s robust NFP and ISM services data and what it means for the Fed’s rate hike.  The market price action Friday and overnight suggests many traders are thinking that “perhaps Mr Powell is not as far out-to lunch as the many analysts believed and maybe the Powell economic view is the correct view.

Then there was “Balloon-gate.”  A Chinese spy balloon wafted across Canada and the US before the American’s blasted it out of the sky over the Atlantic.  Secretary of State cancelled a planned trip to China.  China claims the balloon was for climate research and that it just blew off course. Then a senior diplomat, Wang Yi, attempted to educate the Americans on how to deal with accidents in a calm and professional manner. There is no truth to the rumour that a US official quoted Valkyrie’s Colonel Mertz von Quirnheim and said, “Any problem on Earth can be solved with the careful application of high explosives.”

The US dollar consolidated Friday’s gains while global equity indexes retreated, except for Japan’s Nikkei 225 index, which gained 0.67&.  European bourses opened lower and continued to slide with the French CAC leading the parade lower. S&P 500 futures are down 0.88% while gold and oil are modestly above Friday’s closing levels.

The US 10-year Treasury yield climbed from 3.532% at Friday’s close to 3.612% in early NY trading.

EURUSD is trading defensively in a 1.0760-1.0798 range. ECB policymaker and Latvia Central Bank President Martins Kazaks said that if the data is in-line with expectations they will hike 50 bps in March. His colleague Austria Central Bank President Robert Holzmann agreed saying that “The risk of over-tightening seems dwarfed by the risk of doing too little.”  Those comments helped to slow EURUSD losses after traders re-evaluated the prospect of higher US rates for longer.

The EURUSD technicals are bearish below 1.0800, looking for further losses to 1.0710.

GBPUSD is at its overnight session low after trading in a 1.2024-1.2069 range. The price action mirrored that of EURUSD. Prices did not get much support from hawkish comments by BoE policymaker Catherine Mann who warned of material upside risks to the Bank’s inflation outlook. The technicals are bearish with a decisive break below 1.2030 leading to a test of 1.1920.

USDJPY soared from 128.35 pre-NFP to 132.55 overnight. The rally was due to traders re-pricing Fed rate hike risks and by a report (since denied) that the government was interviewing BoJ Deputy Governor Masayoshi Amamiya, a noted dove, to become the next Governor.

AUDUSD is at the bottom of its 0.6891-0.6947 due to broad US dollar strength and sour risk sentiment. TD Securities’ CPI was 0.9% m/m in January and 6.4% y/y while Retail Sales fell 0.2%, which was better than expected. The RBA is expected to hike rates by 25 bps tomorrow and again in March due to rising inflation.

NZDUSD traded negatively in a 0.6299-0.6333 range. New Zealand was closed for Waitangi Day.

There are no US economic reports of note today.

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

Source: Saxo Bank

China Snapshot

Bank of China Fix: 6.7737, Previous: 6.7382

Shanghai Shenzhen CSI 300 fell 1.39% % to 4086.88.

Chart: USDCNY 1 month

Source: Bloomberg