January 16, 2024
- Trump sets stage for Biden’s Whitehouse eviction.
- Canada’s December inflation hotter than November.
- US dollar rallies on safe-haven demand.
FX at a glance
USDCAD Snapshot: open 1.3493-97, overnight range 1.3423-1.3500, close 1.3426.
USDCAD retreated from its overnight peak in the wake of hotter than expected Canadian inflation data for December falling from 1.3490 to 1.3446 before rebounding to 1.3463.
Canada CPI rose 3.4% y/y in December compared to 3.1% in November. Core CPI (excluding food and energy) rose 3.4% y/y, as well. Higher gasoline prices in December is blamed for the rise in the headline numbers and baseline effects. The monthly CPI decline of 0.3% was as expected.
StatsCanada also issued an inflation review for 2023. In a nutshell, it appears inflation will continue to moderate if supply chain pressures abate, and energy prices stabilize.
The Bank of Canada Business Outlook and Canadian Survey of Consumer Expectations showed that inflation expectations were a tad lower with high interest rates acting as a drag on consumer spending. The results are modestly positive, but inflation expectations may be too high for the BoC’s liking.
Today’s inflation numbers will not force the BoC to react with higher rates which should leave the existing bullish USDCAD trend intact.
The intraday USDCAD technicals are bullish above 1.3460 and looking for a break above 1.3520 to extend gains to 1.3620. A break below 1.3460 suggests a retest of 1.3410, then 1.3360.
Longer term, the daily chart warns that a decisive break above 1.3520 sets the stage for a straight shot to 1.3610 before targeting 1.3820.
For today, USDCAD support is at 1.3450 and 1.3430. Resistance is at 1.3520 and 1.3590. Todays range 1.3450-1.3540.
Chart: USDCAD 4 hour
G-10 FX recap
Heee’s baack! (He never really went away)
Former US President Donald Trump is well along the path to becoming the next US president, especially if he can take his Iowa Republican caucus performance across the country. The bellicose, bombastic narcissist secured more votes than his three challengers combined and has already ordered moving vans for a return to the White House.
The World Economic Forum is in full swing. China President Li Qiang told the audience that the world has entered a new period of transformation and turbulence, while omitting the fact that it was Beijing stirring the pot. Ukrainian President Volodymyr Zelensky and EU President Ursula von der Leyen are also speaking.
However, traders are keenly awaiting remarks from Fed Governor Christopher Waller, hoping to hear more comments about the timing of Fed rate cuts.
Asian equity indexes closed with losses, and the German Dax index, which is down 0.62%, is leading European bourses lower. S&P 500 futures are down 0.51%.
EURUSD traded negatively, falling to 1.0874 from 1.0951 due to the resurgent greenback. Traders turned a deaf ear to comments from ECB Governing Council members Joachim Nagel and Robert Holzmann. Both warned that it was too early to cut interest rates. German and Eurozone ZEW survey results showed a bit of improvement in Economic Sentiment which was mainly due to hopes for ECB rate cuts.
GBPUSD traded in a 1.2620-1.2737 range overnight, with traders content to await UK employment data on Tuesday. UK employment data didn’t do much to offset GBPUSD selling pressure as average earnings fell to 6.5% (3m/y/y) from 7.2% previously.
USDJPY rallied from 145.69 to 146.75 due to the US 10-year Treasury yield rising from 3.96% to 4.005% and due to weak inflation data. December PPI was 0% y/y, which supports the BoJ view that they do not need to tighten policy any time soon.
AUDUSD bulls were punished with the currency falling to 0.6596 from 0.6665 due to broad US dollar demand and falling commodity prices. Iron-ore prices dropped 1.3% to $128.00/ton.
FX high, low, open (as of 6:00 am ET)
PBoC fix: today 7.1134, expected 7.1783, previous 7.1084
Shanghai Shenzhen CSI 300 rose 0.61% to 3300.88.
More stealth intervention in the stock market. There are rumours that Chinese authorities told some institutional investors not to sell stocks.
Chart: USDCNY and USDCNH 1 year.