- Markets roiled by rebalancing distortions
- Canada GDP 0.3% m/m in April
- US dollar ends quarter on strong note. CAD outperforms
FX Year to date-change at a glance
Source: IFXA Ltd/RP
USDCAD Snapshot: open 1.2913-17, overnight range 1.2880-1.2932, close 1.2896
USDCAD is ending the month with a bid tone. The drop in S&P 500 futures overnight combined with month-end portfolio rebalancing demand for US dollars underpins prices
Canada grew 0.3% (March 0.7%) as expected but the news had little impact on USDCAD trading. Today’s focus is month-end portfolio rebalancing demand, and the S&P 500 index moves.
WTI oil prices retreated to $108.72/barrel after reaching $113.82 yesterday. Traders were spooked by the EIA report showing gasoline demand was softer than expected which analysts said may be a sign of slowing consumer demand. Prices did not react to news that Opec agreed to the planned August production increases, mainly because it is symbolic. The Cartel is struggling to meet previously increased targets.,
Canada is closed for Canada Day on Friday, US markets closed Monday for July 4th
USDCAD technical outlook
The intraday USDCAD technicals flipped to bullish with the break above 1.2890, which suggests further gains to the 1.2980-1.3020 zone. The prospect of a 0.75%rate hike on July 13 reinforces the topside resistance. A move below 1.2880 targets 1.2820 then 1.2750
For today, USDCAD support is at 1.2890 and 1.2850. Resistance is at 1.2940 and 1.2980. Today’s Range 1.2870-1.2970
Chart: USDCAD daily
Source: Saxo Bank
G-10 FX recap and outlook
Note: Loonieviews will not be published on Friday or Monday
The US dollar is ending the quarter on a strong note thanks to Fed Chair Powell and friends realizing that US inflation increases were not transitory and were getting out of hand.
Month-end flows helped underpin the US dollar overnight and knocked global equity indexes down. The major Asian equity indexes closed deep in the red, with Australia’s ASX 200 losing 1.87% and Japan’s Nikkei 225 dropping 1.54%. China’s Shenzhen CSI 330 index bucked the trend and rallied 1.44%, supported by better than rebounding PMI data.
European stocks dropped after a barrage of weak data highlighted recession risks. The German Dax is leading the charge, losing 2.38%, with the French CAC index a close second, down 2.29%. S&P 500 futures have lost 1.12%, suggesting an ugly open on Wall Street.
Gold and oil prices are modestly lower as is the US 10-year Treasury yield which sits at 3.012%.
Fed Chair Jerome Powell fancies himself an inflation fighter. He said that the Fed would increase rates and could spark a recession. He warned, “The bigger mistake to make—let’s put it that way—would be to fail to restore price stability.” The recession talk combined with month-end rebalancing distortions has given the greenback a bid.
US weekly jobless claims were 231,000 higher than forecast but below the previous week’s upward revision to 233,000.
President Biden is having a press conference following the NATO meeting. He announced that NATO partners committed to sharp increases in defence spending as a direct consequence of Russian aggression. At a minimum, it will ensure Russia and Western tensions remain elevated. He also railed at China’s abusive trade practices.
EURUSD traded with a negative bias in a 1.0412-1.0468 range. The single currency was under pressure from month-end US dollar demand, recession worries after another series of weak economic reports, and concerns over the prolonged Russia/Ukraine war. French inflation jumped to 6.5% from 6.3% in May, which didn’t help sentiment. Neither did news that Sweden’s Riksbank hiked its benchmark rate by 0.50% to 0.75%. The intraday EURUSD technicals are bearish below 1.0500.
GBPUSD dropped to 1.2109 from 1.2165, with prices tracking EURUSD moves. UK economic reports were mixed and largely ignored. The intraday GBPUSD technicals are bearish below 1.2260.
USDJPY is consolidating this week’s gains in a 135.97-136.80 range. Profit-taking and a lower US 10-year Treasury yield undermined the currency pair as did a larger than expected drop in Industrial Production (actual -7.2% vs forecast -0.3%).
AUDUSD bounced in a 0.6855-0.6902 range. Better than expected Chinese PMI data supported prices while month-end US dollar demand limited gains.
It’s a busy data for data in the US. Weekly jobless claims, Personal Consumption Expenditures Price index, and Chicago PMI are on tap.
FX open, high, low, previous close as of 6:00 am ET
Source: Saxo Bank
Today’s Bank of China Fix 6.7114, Previous 6.7035
Shanghai Shenzhen CSI 300 rose 1.44% to 4,485.01
Stocks rally after PMI data rises.
NBS June Manufacturing PMI 50.2 vs 49.6 in May
NBS Non-Manufacturing PMI 54.7 vs 47.8 in May
Chart: USDCNY 1 month
Source: Yahoo Finance