December 17, 2024
- Canadian government drama weighs on Loonie
- Focus on Fed-tomorrow
- USD opens little changed-CAD falls 0.29%.
FX at a Glance
Source: IFXA/RP
USDCAD open 1.4292, overnight range,1.4232-1.4294, close 1.4242
The Canadian dollar is making headlines. Actually, it is the Justin Trudeau government making the headlines and the Canadian dollar (and Canadians) that are paying the price. Yesterday, Canadians discovered that the Trudeau government expects a $69.9 billion budget deficit for 2024, 50% higher than the $40 billion deficit projected last March.
Finance Minister Chrystia Freeland was so annoyed about the spending spree that she quit before tabling the document. Trudeau scrambled to find a replacement and ended up picking his former babysitter, Dominic LeBlanc, for the job. Mr. LeBlanc didn’t want to touch the Fall Economic Statement with a 10-foot poll so Government House Leader Karina Gould got the short end of the stick.
Global markets were unimpressed with the budget numbers but even more unhappy with Freeland’s description of the Trudeau government. She accused Trudeau of using “costly political gimmicks, which we can ill afford and which make Canadians doubt that we recognize the gravity of the moment,” suggesting he was more concerned about his low poll numbers than the economy.
Canadian inflation continues to rise at a slow pace. November CPI rose 1.9% y/y (forecast 2.0%) while Core-inflation rose just 0.1% m/m compared 0.4% previously. If this keeps up, the narrative will shift to deflation.
USDCAD rallied overnight, rising from 1.4242 to 1.4294. Trading may be choppy due to chunky option expiries, including $880 million in the 1.4240-50 area and $500 million in the 1.4300-10 area.
USDCAD Technicals
The intraday USDCAD technicals are bullish while trading above 1.4240 looking for a break above 1.4320 to extend gains to 1.4370. A break below 1.4240 suggests a dip to 1.4200.
The USDCAD uptrend line from the beginning of October is intact while prices are above 1.4090.the daily chart suggests that there is nothing but daylight to 1.4665 on a break above 1.4320 . However, the momentum studies suggest USDCAD is at, or very near extreme overbought levels which risks a “mean reversion” retreat to 1.4170.
For today, USDCAD support is 1.4240 and 1.4210. Resistance is 1.4300 and 1.4320
Today’s Range: 1.4220-1.4320.
Chart: USDCAD daily
Source: Oanda.com
All Revved up but Nowhere to Go
There were plenty of top-tier economic reports released overnight, but they had little impact on trading. Traders are focused on Wednesday’s FOMC meeting, even though Trump’s pending inauguration is overshadowing whatever Chair Jerome Powell has to say.
Asian equity indexes closed modestly lower, except for the Australian ASX 200, which gained 0.78%. European bourses are posting gains except for the UK FTSE 100 index, which is down 0.68% following a better-than-expected UK employment report. S&P 500 futures are trading down 0.28%, while the US 10-year Treasury yield sits at 4.42%.
American’s Are Shopping
Retail Sales, ex-autos rose 0.2% m/m a tad less than expected (forecast 0.4%) and unchanged from the upwardly revised 0.2% m/m in October. The results were ignored.
EURUSD
EURUSD is struggling in a 1.0479-1.0534 range following another disappointing German Ifo survey. The survey said, “Sentiment among companies in Germany has worsened. The Ifo Business Climate Index fell to 84.7 points, down from 85.6 points in November, the lowest level since May 2020. The decline was due in particular to more pessimistic expectations.” However, the negative news was offset by the German ZEW economic sentiment indicator rising to 15.7 from 12.5.
GBPUSD
GBPUSD rallied from 1.2666 to 1.2707 after the UK employment report gave the Bank of England more justification to leave rates unchanged on Thursday. Average hourly earnings, including bonus, rose 5.2% in the three months ending in October, compared to 4.4% previously.
USDJPY
USDJPY is sitting in the middle of its 153.69-154.35 range without any particular direction. Traders are content to await the BoJ rate decision on Friday. The odds for a rate hike are just 20%.
AUDUSD and NZDUSD
AUDUSD traded negatively in a 0.6337-0.6379 range due to a mix of broad US dollar strength and a poor outlook for China’s economic growth due to Trump’s tariff threats.
NZDUSD mirrored AUDUSD moves in a 0.5755-0.5794 range, but its losses were exacerbated by weak Westpac Consumer Confidence, which was -2% compared to 5.3% previously.
USDMXN
USDMXN is on the defensive and trading near the bottom of its 20.1011-20.1720 range, despite expectations that Banxico will cut rates by 25 bps on Thursday. Mexican Retail Sales fell 1.2% y/y in October which was an improvement from Septembers -1.5% decline
FX high, low, open (as of 6:00 am ET)
Source: Investing.com
China Snapshot
PBoC Fix: 7.1891 vs exp. 7.2842 (prev. 7.1882)
Shanghai Shenzhen CSI 300 rose 0.26% to 3922.03
Chart: USDCNY and USDCNH
Source: Investing.com
