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August 18, 2021

FOMC minutes on tap

Canada inflation soars to 3.7% y/y in July (3.1% in June)

RBNZ delays rate hike

FX at a Glance:

Source: IFXA/RP

USDCAD Snapshot   Open 1.2622-26, Overnight Range 1.2600-1.2639, Previous close 1.2626

Canada July inflation was hotter than forecast rising 3.8% y/y.  Excluding gasoline, CPI rose 2.8% y/y. On a monthly basis, CPI rose 0.6%.  USDCAD dropped from 1.2618 to 1.2600 on the news but reversed the move just as quickly.  Traders prefer to await the FOMC minutes.

USDCAD broke above the 200-day moving average (1.2557), Monday and has not looked back. The rally stalled just below resistance at 1.2650 yesterday. Prices consolidated overnight supported by soft oil prices. USDCAD gains are capped by USDCAD suggesting the currency pair is overbought.

Even so, USDCAD direction is at the mercy of the US dollar sentiment and that sentiment is modestly bullish ahead of the FOMC minutes, this afternoon.

Technical view:  The USDCAD technicals are bullish. The break above the 200-day moving average and then resistance at 1.2605, sets the stage for a break above 1.2650, and a test of the July peak of 1.2795.  A move below 1.2590 would negate the topside pressure. For today, USDCAD support is at 1.2605 and 1.2550. Resistance is at 1.2650 and 1.2700. Today’s range 1.2590-1.2670

Chart USDCAD  4-hour, 90 days

Source: Saxo Bank

G-10 FX recap and outlook

Fed Chair Jerome Powell did not offer any fresh insight into the US economic outlook yesterday. He said the US is not returning to a pre-pandemic economy, and that millions of service sector workers are unemployed.

Today’s FOMC minutes will be parsed for further evidence that the Fed will announce a taper program before year end.

Global risk sentiment is wobbly due to Afghanistan, and COVID-19 delta variants.

Asia equity traders ignored the retreat on Wall Street and bought stocks. The Nikkei closed with 0.59% gains, while the Hong Kong Hang Seng Index rose 0.47%. Australia’s ASX 200 index was slightly lower. European bourses are trading lower as are S&P 500 and DJIA futures. Oil and gold prices are a touch firmer, while US 10-year Treasury yields are 1.272%.

EURUSD stagnated in a 11.1703-1.1729 range overnight and is sitting at 1.1718 in NY.  Traders are content to await the FOMC minutes even though their usefulness is questionable after recent economic data and comments from Fed officials.  Eurozone inflation rose 2.2% for July which was as expected and ignored.  The short term EURUSD technicals are bearish below 1.1800.

GBPUSD is trading at the top of its 1.3732-1.3768 range despite weaker inflation data.  CPI dipped to a 2.0% y/y in July.  However, ING economists believe the drop is a “one-off”, and inflation will rise above 3.0% later in 2021.  GBPUSD is bullish above 1.3710.

USDJPY continues to recoup losses sustain since last Friday. USDJPY climbed to 109.68 from yesterday’s low of 109.10.  Prices were supported by steady US Treasury yields and traders ignored mixed Japanese data.

NZDUSD plunged to 0.6871, from 0.6940 after the RBNZ backed-off a 0.25% rate hike. The sharp spike in COVID-19 Delta-variant cases from 0 to 1, which made the government lock down the entire country, forced the RBNZ to delay their planned rate increase. The  RBNZ statement suggested interest rate hikes are still on the agenda which caused a spike back to 0.6950, which was short lived. T

AUDUSD outperformed against NZDUSD but weaker wage price data limited gains.

Chart of the Day- NZDUSD 5-minute, 2 days

Source: CNBC

FX open, high, low, previous close

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix, 6.4915 Previous day 6.4765                                    

Shanghai Shenzhen CSI 300 rose 1.17% to 4894.24

Chart: USDCNY 1 month

 Source: Yahoo Finance