Photo: TerryToons

March 20, 2023

  • Credit Suisse AT-1 bonds wiped-out $17 billion evaporates.
  • Safe-have demand crushes 10-year Treasury yield.
  • US dollar opens lower against safe-haven currencies.

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3718-22, overnight range 1.3688-1.3745, close 1.3735

USDCAD traded choppily overnight, rising, and falling with ever shifting risk sentiment tides. Domestic factors are not a concern for traders.

Canadian inflation data for February is due tomorrow and expected to show headline CPI fell to 5.4% from 5.9% while Core-CPI drips to 4.6% from 5.0% y/y. The continued slide in CPI suggests the BoC may leave rates unchanged again at the April 12 meeting.

WTI oil dropped from $67.41/b to $64.15/b before climbing to $65.63.  Prices are depressed due to fears that a global financial crisis will slow demand. In addition, Goldman Sachs cut its forecast for Brent crude from $100.00 to $94.00/b for 2023.  Standard Chartered Bank analysts say that option traders hedging their positions have exacerbated the oil price drop.

USDCAD Technical Outlook

The intraday USDCAD technicals are rangebound inside a 1.3680-1.3780 band.  The downtrend line from March and the uptrend line from February continue to contain price action.  A decisive break of 1.3630 targets 1.3490, while a breach of 1.3780 suggests a retest of 1.3860.

For today, USDCAD support is at 1.3680 and 1.3650.  Resistance is at 1.3750 and 1.3790.

Today’s range 1.3680-1.3750

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

They may not have been wearing capes, but a cabal of G-7 central bankers came to the rescue of global financial markets on the weekend. The Fed, Bank of Canada, Bank of England, ECB, Bank of Japan, and the Swiss National Bank (SNB) announced “coordinated action to enhance the provision of liquidity via the standing US dollar liquidity swap line arrangements.”

The news came on the heels of UBS announcing it agreed to buy Credit Suisse for around $3.2 billion, which is less than half of what the CS was valued at the close on Friday.  CS’s $17 billion of Additional Tier-1 bonds became worthless.

Global markets were not impressed.  Asia equity indexes closed sharply lower led by a 1.42% drop in Japan’s Nikkei 225 index and a 2.66% slide in Hong Kong’s Hang Seng index.  European bourses are trading around flat, after starting the session in the red. S&P 500 futures traded similarly to the European indices and are close to unchanged.

Traders scrambled for safe-haven assets and the US 10-year Treasury yield dipped to 3.291% before ticking back to 3.9% in NY.

It is the first day of spring and love is in the air, at least in Moscow.  Chinese President Xi Jinping is on a date with his new BFF, Vladimir Putin, where the two men plan to consummate their relationship.  North Korea’s Supreme wingding, Kim Jong-un was not invited to the lovefest and forced to play with his missiles some of which landed in the Sea of Japan.

Fears of another global financial crisis will linger throughout the day with traders asking whether the Fed will ease or exacerbate those fears at Wednesday’s meeting.

US political theater may be on full display Tuesday if Manhattan District attorney Alvin Bragg Democrat arrests Donald Trump on Tuesday. 

EURUSD traded negatively in a 1.0632-1.0706 range overnight but has risen from the low to 1.0700 in early NY trading. The gain is due to risk sentiment shifting from negative to positive although concerns around the fall-out of the CS debacle should limit gains. In addition, traders will be cautious until Wednesday’s FOMC meeting.

GBPUSD traded sideways in a 1.2168-1.2225 range and is sitting at 1.2204 in NY.  Gains are limited due to fears of contagion risks exacerbated by the wipeout of the CS AT-1 bonds. The Bank of England meets Thursday and a 25 bp rate hike is still expected.

USDJPY plunged to 130.55 from 132.64 due to a wave of safe-haven demand for yen.  Prices rebounded to 131.37 in NY in tandem with the bounce in the 10-year US Treasury yield from its session low.

AUDUSD dropped from 0.6741 to 0.6667 do to negative risk sentiment stemming from fears of another global banking crisis. RBA Assistant Governor Chris Kent reassured Aussies saying Australian banks are “unquestionably strong.

The US data calendar is empty.

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

Source: Saxo Bank

China Snapshot

Bank of China Fix:  6.8694, Previous: 6.9052

Shanghai Shenzhen CSI 300 fell 0.50% to 3939.08.

PboC leaves 1-year and 5-year Loan Prime Rate unchanged.

Chart: USDCNY 1 month

Source: Bloomberg