Photo: BingAI

July 7, 2023

  • Canada adds 59,900 new jobs.
  • US NFP disappoints.
  • USD opens mixed then fallas after NFP data.

FX at a glance:

 Source: IFXA Ltd

USDCAD Snapshot: open 1.3371-75, overnight range 1.3321-1.3385, close 1.3367

Yesterday, USDCAD surged from 1.3274 to 1.3367 and then consolidated its gains during a quiet overnight session. These gains were attributed to the significant increase in US Treasury yields following a series of robust US economic reports, which indicated a substantial reduction in the risk of a recession in America.

However, the situation changed after the release of the Canadian June employment report, which turned out to be much stronger than expected. Canada experienced a net gain of approximately 60,000 jobs, with full-time employment rising by 100,000. The participation rate also increased to 65.7% (previously 65.5%), but the unemployment rate rose to 5.4% from 5.2%.

As a result, USDCAD dropped from 1.3368 to 1.3321 but has since made a slight recovery, inching back up to 1.3340.

The strength of today’s data may be significant enough to prompt the Bank of Canada (BoC) to raise interest rates again in the upcoming week.

USDCAD Technical Outlook

USDCAD bumped against the top of it’s minor 1.3250-1.3390 channel, then reversed, supported by the robust domestic employment report. The 1.3390 level is the 50% Fibonacci retracement of the June range, which if broken targets 1.3440, the 61.8% Fibonacci level.

Failure to rally above 1.3400 suggests a retest of the 1.3250 uptrend.

For today, USDCAD support is at 1.3320 and 1.3290.  Resistance is at 1.3390 and 1.3450

Today’s range 1.3290-1.3390

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap

US nonfarm payrolls data disappointed analysts as the figure of 209,000 fell below the expected 225,000 and well below the revised estimate of a 270,000 increase. This revision came after the release of strong US ADP data (actual 497,000 vs. forecast 228,000) and a higher-than-expected ISM services report.

Yesterday’s data caused the US 10-year yield to rise to 4.066% from a low of 3.64% on Wednesday. The yield showed little movement after today’s data (3.052%), indicating that bond traders still believe recession risks have diminished and anticipate higher and longer-lasting US interest rates.

Dallas Fed President Lorie Logan also supports higher rates, stating yesterday that she expects two more rate hikes in 2023.

US Treasury Secretary Janet Yellen is currently in China, engaging with various officials, including Chinese Premier Li Qiang. She emphasized the importance of healthy economic competition that benefits both countries over time, rather than a winner-takes-all approach. However, Chinese officials may interpret these words as “our way or the highway.”

Japan has announced plans to release previously contaminated water, used to cool the Fukushima nuclear reactor fuel rods. The plant operator, Tepco, claims that the water has been treated and is safe. However, the three-headed Rock-fish disagrees, expressing a unanimous dissenting opinion.

EURUSD initially drifted within a range of 1.0868-1.0899 overnight but then rose to 1.0931 after the release of the nonfarm payrolls data. The rally primarily resulted from the unwinding of short EURUSD positions, as traders anticipated a robust NFP report. The 0.2% decline in German Industrial Production, compared to a 0.3% gain in April, did not significantly impact the currency pair.

GBPUSD remained steady within a range of 1.2727-1.2764 before surging to 1.2807 after the data release. The downside for GBPUSD is limited, at least in the near term, due to expectations of a 1.50 basis point rate increase by the Bank of England. The decline in UK house prices by 2.6% over a three-month period ending in June was attributed to the higher domestic rates.

USDJPY extended its losses from the previous night after the release of the nonfarm payrolls data, dropping to 142.60 after peaking at 144.19 in Asia. Traders are overlooking the higher US Treasury yields and focusing on the possibility of the Bank of Japan tweaking its policy, prompted by Japanese wage data showing a 2.5% increase.

AUDUSD remained at the lower end of its overnight range of 0.6622-0.6648, as prices continued to be pressured by the US interest rate outlook.

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

Source: Bloomberg

China Snapshot

Bank of China Fix: 7.2054  (expected 7.2423) Previous 7.2098

Shanghai Shenzhen CSI 300 fell 0.44% to 3825.70.

The PboC is pushing back against the weakening CNY and deliberately fixing USDCNY well below expectations.

Chart: USDCNY 6 month

Source: Bloomberg