October 29, 2021

Canada August GDP lower than expected

Euro Area data contradicts dovish ECB view

US dollar opens with losses against major G-10 currencies

FX at a Glance:

Source: IFXA Ltd/RP

USDCAD Snapshot   Open 1.2339-43, Overnight Range 1.2330-1.2362, Previous close 1.2345

USDCAD traded sideways yesterday and overnight with traders looking ahead to next week’s FOMC meeting.  USDCAD downside pressure after the Bank of Canada’s (BoC) hawkish tilt on Wednesday has faded because the BoC is just one of several central banks contemplating rate hikes sooner than previously stated.  The bankers are beginning to believe that inflation gains may not be as fleeting as they once believed. However, ECB President Christine Lagarde is not one of them. She reiterated her view that inflation would return to 2.0% next year.

Canada August GDP disappointed, rising 0.4% m/m compared to the consensus forecast for a 0.7% m/m gain.  Statistics Canada is projecting that the September result will be unchanged.  Raw Material and Industrial Price indexes were well-above forecasts.

USDCAD ticked higher on the news and is testing its overnight session peak.

Technical view:  The intraday USDCAD technicals are bearish below 1.2400, looking for a break below 1.290 then 1.2240 to extend losses to 1.2020.  A break above 1.2400 would suggest further 1.2290-1.2500 consolidation.

For today, USDCAD support is at 1.2320 and 1.2280.  Resistance is 1.2390 and 1.2430. Today’s range 1.2280-1.2380

Chart USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

The greenback is on the defensive, with suspected month-end portfolio rebalancing flows weighing on the currency.  That’s not all.  Positive US dollar sentiment due to earlier, somewhat hawkish comments by Fed Chair Jerome Powell and other policymakers have been usurped by rising interest rate fears in other G-10 markets. 

Asia equity markets closed on a mixed note due to disappointing quarterly earnings from the likes of Apple (AAPL) and Amazon (AMZN).  European bourses aren’t feeling the love either, as all are lower.  S&P 500 and DJIA futures failed to extend above yesterday’s record highs and are flat to modestly softer.  Oil and gold prices are trading close to flat. US 10-year yields are higher at 1.612%.

The US dollar traded firmer following higher than expected PCE and ECI data.

The US Employment Cost Index rose 1.3% in Q3, well above the 0.9% predicted, and 0.7% previously. Personal Consumption and Expenditures  (PCE) Price index rose 4.4% y/y compared to 4.2%y/y  in August.

EURUSD rallied from 1.1583 yesterday to 1.1691 despite an almost unchanged monetary policy statement and ECB President Christine Lagarde’s insistence that elevated inflation levels will disappear by the end of 2022, hence no need to change their policy stance.

Traders don’t believe her and have priced a 0.20 bp rate hike in for October 2022. The ECB survey of professional forecasters agrees with Lagarde, forecasting a sharp fall in inflation to below 2.0% in 2022. 

EURUSD is trading below overnight session lows, following the US data.  That move is despite higher than expected Euro area GDP (actual 3.7% y/y vs forecast 3.5%) and October CPI rising 4.1% y/y compared to 3.4% y/y in September.

GBPUSD rallied alongside EURUSD with prices supported by expectations for a hawkish Bank of England result at next Thursday’s meeting.  However, renewed inflammatory Brexit rhetoric over Britain’s plans for the Northern Ireland border and the fishing dispute with France cap gains.  GBPUSD is bullish while prices are above 1.3720.

USDJPY is steady in a 113.40-113.93 range.  Higher US Treasury yields support prices.  Japan has a general election on Sunday, and the ruling LDP party could lose its majority.

AUDUSD retreated after the US data dropping from 0.7554 overnight to 0.7520 in NY.  The RBA’s decision not to buy 0.10% April 2024 bonds again overnight has convinced traders that the central bank will announce an end to its yield control target at Tuesday’s RBA monetary policy meeting.

Chart of the Day: ECB rate hike sentiment

Source:  Nordea

FX open, high, low, previous close

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3907, Previous 6.3957

Shanghai Shenzhen CSI 300 rose 0.92%% to 4,908.77

China’s Evergrande made debt payment and the founder pledged to repay 260 million in bonds

Chart: USDCNY 1 month

Source: Yahoo Finance