Photo: BingAI

June 28, 2023

  • Canada May Core-CPI drops to 3.4% y/y vs April 4.4%.
  • China fixes yuan below market expectations, arrests Finance bloggers.
  • US dollar opens mixed-Commodity currencies rise.

FX at a glance

 Source: IFXA Ltd/

USDCAD Snapshot: open 1.3139-43, overnight range 1.3119-1.3176, close 1.3156

USDCAD is digesting news that inflation rose just 3.4% y/y in May, the smallest increase since June 2021, thanks to a sharp drop in year-year-over-year gasoline prices (-18.3%). However, if you strip out the gas price, CPI rose 4.4% y/y.

USDCAD ticked higher on the news, but the gains were minimal. Nevertheless, the results give the BoC room to hit the rate hike pause button, again.

WTI oil fell to $68.21 from $70.12/b overnight due to ongoing demand concerns due to China’s slow economic rebound.

USDCAD Technical Outlook

The USDCAD technicals are bearish below 1.3180 looking for a move below 1.3110 to extend losses to 1.3050, then 1.3000.

Fibonacci retracement suggests that further losses to 1.3000 while below 1.3230.The downtrend from June 1 is intact while prices are below 1.3250 and USDCAD is no longer oversold according to Bollinger band and RSI studies.  

For today, USDCAD support is at 1.3110 and 1.3060.  Resistance is at 1.3180 and 1.3220

Today’s range 1.3080-1.3180

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap

Wall Street closed negatively, led by a 1.16% drop in the Nasdaq and a 0.45% loss in the S&P 500 index. The US 10-year Treasury yield closed at 3.719%.

Putin emerged from his Saddam Hussein-style spider hole yesterday to proclaim that he carefully orchestrated responses to the Wagner Group mutiny, and that the issue was resolved according to his plan. His nose grew six inches.

What changed?

US Durable Goods Orders rose 1.7% in May compared to the forecast for a drop of 1.0%

China likes to be unconventional. Traditionally, when a government or central bank takes exception to the level of its currency, officials blather warnings that “excessive moves won’t be tolerated” (ala Japan) or discreetly intervene (ala Swiss National Bank). Beijing prefers to arrest people who communicate a different currency view from Xi Jinping’s.

The PBOC also set its USDCNY fixing rate well below market expectations (actual 7.2098 vs forecast of 7.2194), which is a signal that the bank is unhappy with the rise in USDCNY.

Asian equity indexes closed on a mixed note. Japan’s Nikkei 225 index fell 0.49%, while Australia’s ASX 200 gained 0.55%. Chinese stock indices rose. European bourses are flitting around unchanged, while S&P 500 futures have gained 0.17%. WTI oil prices are down 0.99% from the close, while gold is unchanged. The US 10-year Treasury yield inched up to 3.741%.

EURUSD traded with a bid in a 1.0903-1.0958 range and is at the top of that band in NY trading due to the outlook for higher ECB rates.

The ECB Central Bank Conference in Sintra, Portugal, is in full swing. President Christine Lagarde warned of higher interest rates, saying, “We have made significant progress, but faced with a more persistent inflation process, we cannot waver, and we cannot declare victory yet.” “Inflation in the euro area is too high and is set to remain so for too long.”

Her colleague and Latvian Central Bank governor Martins Kazaks went a step further and warned, “Market bets on rate cuts in early 2024 are wrong.” The intraday EURUSD technicals are bullish above 1.0870.

GBPUSD traded in a 1.2705-1.2757 range and is in the middle of that band. Traders are looking ahead to comments from BoE officials attending the Sintra conference. GBPUSD is supported by BoE rate hike expectations and by the generally soft US dollar profile today. The intraday GBPUSD technicals are bullish above 1.2700, with a break above 1.2760 targeting 1.2850.

USDJPY is bid, rising from 1.0902 to 1.0948, as traders taunt the BoJ and dare them to intervene in FX or raise the yield curve control (YCC) cap.

AUDUSD traded in a 0.6671-0.6719 range and is at 0.6693 in NY. Traders are tracking broad US dollar sentiment and USDCNY moves as CNY is viewed as a proxy to AUD due to the two countries’ trade relationship.

US Economic Calendar: May Durable Goods Orders (forecast -1.0%, vs 1.1% in April), Housing Price Index (0.3% m/m vs 0.6% in March), S&P Case-Shiller April Home Price Index (-2.6% y/y, previously -1.1%), June Consumer Confidence.

US Economic Calendar

Housing Price index (0.3% m/m vs 0.6% in March), S&P Case-Shiller April Home Price Index (-2.6% y/y, previously -1.1%) June Consumer Confidence.

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

Source: Bloomberg

China Snapshot

Bank of China Fix: 7.2098, previous 7.2056

Shanghai Shenzhen CSI 300 rose 0.94% to 3845.43.

Traders expected PboC fix at 7.2194 and Chinese State banks reportedly sold USDCNH to support yuan. Analysts suggest the lower fix is a “strong signal” by officials that the current USDCNY rise is excessive.

 Authorities also arrested a Finance writer and banned two of his peers from social media for spreading “negative and harmful information.”

Chart: USDCNY 6 month

Source: Bloomberg