May 16, 2023

  • Eurozone, UK and Chinese data all disappoint.
  • Canada April Inflation perks up
  • US dollar inches lower on profit-taking.

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3458-62, overnight range 1.3409-1.3492, close 1.3467

USDCAD retreated yesterday then consolidated the losses overnight before dropping following the Canadian inflation numbers.

Statistics Canada wrote: “The Consumer Price Index (CPI) rose 4.4% year over year in April, following a 4.3% increase in March. This was the first acceleration in headline consumer inflation since June 2022. On a year-over-year basis, higher rent prices and mortgage interest costs contributed the most to the all-items CPI increase in April 2023Those results would reinforce the Bank of Canada’s rate hike pause. However, many analysts are concerned that falling inflation may be temporary as there is still a lot of pent-up demand in services and housing prices are on the rise.”

The results could force the Bank of Canada to hit the rate hike button again.

The Canadian economy may suffer another setback thanks to the Federal government’s decision to give Volkswagen $13 billion to build a battery plant in St Thomas. Stellantis (maker of Jeep, Dodge, Ram) was already building a battery plant in Windsor and agreed to do so for a mere $1.0 billion from the Feds and Province. They halted construction and may move the project to the US, unless they receive similar funding as VW.  In a nutshell, the Trudeau government may lose an inexpensive battery plant already under construction in favour of one that is still a paper dream and costs 13x more.

USDCAD Technical Outlook

The intraday USDCAD technicals are bearish below 1.3490 looking for a decisive break below 1.3430 to set the stage for a retest of they May low at 1.3310. A move above 1.3490 puts 1.3550 back in play.

Longer term, USDCAD is just churning inside the 1.3210-1.3850 range that has contained prices action since mid-September 2022. The downtrend from the peak is intact below 1.3610, while the June 10, 2021 uptrend is intact above 1.2950.

For today, USDCAD support is at 1.3390 and 1.3350.  Resistance is at 1.3480 and 1.3530

Today’s range 1.3390-1.3470

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

Recent trading action has much in common with trying to light a fire with wet matches. An occasional spark followed by PFFT.

Markets hope for progress on US debt ceiling talks when President Biden and House of Representatives speaker Kevin McCarthy meet today. Treasury Secretary Janet Yellen tells all who will listen that the US will run out of cash by June 1. Traders just twiddle their thumbs.

US Retail Sales rose 0.4% m/m which was better than in March but below the forecast for a 0.7% increase. Markets barely budged on the news.

EURUSD drifted in a 1.0864-1.0904 band with upside moves slowed by disappointing Euro zone and German ZEWdata. Euro zone May Sentiment was – 9.4 compared to the forecast of 8.2 and the April result of 6.4. German sentiment dropped into negative territory for the first time since December 2022. (actual -10.7 vs forecast -5.5). Traders seemed more concerned about developments stateside with the ongoing debt ceiling talks and retail sales in focus.

GBPUSD chopped in a 1.2467-1.2545 range undermined by soft employment data. The unemployment firmed to 3.9% from 3.8 which some analysts suggested may lead policymakers to limit rate hikes, even though the unemployment level is near a historic low. Prices rallied to the top of the range in early NY after Euro area data sparked EURGBP selling.

USDJPY traded quietly in a 135.70-136.10 range band Prices tracked US treasury yields with downside limited by the dovish BoJ outlook.

AUDUSD traded negatively in a 0.6667-0.6708.  Prices were affected by poor domestic and Chinese data. Chinese retail sales and industrial production data disappointed and Westpac Consumer Sentiment fell to the lowest reading since the COVID outbreak in 2020.

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

Source: Bloomberg

China Snapshot

Bank of China Fix: 6.9506 previous 6.9654

Shanghai Shenzhen CSI 300 fell 0.52% to 3978.21.

April Industrial production 5.6% y/y (forecast 10.9%, March 3.9%)

April Retail Sales 18.4% (forecast 21%, March 10.6%.

Chart: USDCNY 1 month

Source: Bloomberg