Photo: Pixabay

May 6, 2021

Beijing suspends China/Australia Strategic Economic Dialogue

Bank of England upgrades outlook

US dollar gives back overnight gains and opens with losses

USDCAD open 1.2245-49,  Overnight Range 1.2238-1.2287, close 1.2265

FX at a Glance

FX Recap and Outlook

Risk aversion sentiment spike in Asia, albeit briefly.  Beijing further turned the screws on Australia when it announced it was suspending the China and Australia Economic Dialogue (CAED ), blaming Australia’s disruption of cooperation for the action.  It is another measure to punish Australia for having the audacity to suggest an independent inquiry into Beijing’s handling of the COVID-19 virus.

AUDUSD plunged on the news, dropping to 0.7703 from 0.7757.  That drop boosted the greenback against the rest of the G-10 majors.   The move was fully reversed after traders discovered that the last meeting of CAED was four years ago. 

FX risk sentiment is still in the driver’s seat, supported by a flock of Fed officials insisting it was not the right time to change monetary policy. Fed Vice Chair Richard Clarida said the Fed was “a long way from goals.” Cleveland Fed President Loretta Mester believes monetary policy needs to remain accommodative for some time.  Chicago Fed President Evans said, “the Fed is in it to win it.”

In Europe, French and British Navy vessels are patrolling around Jersey, as both countries attempt to assert fishing rights.  Can you hear ABBA singing Waterloo?

US Jobless Claims were a better than expected 498,000 (forecast 540,000) which more than offset the upwardly revised results from last week.

EURUSD dropped in Asia following the China/Australia headline but quickly recovered, climbing from 1.1994 to 1.2060 after today’s US data.  The single currency got an added boost from higher than expected German Factory Orders (actual 3% vs February 1.4% m/m) and a 2.7% m/m rise in March Retail Sales.  The EURUSD failure to extend losses below 1.2000 keeps gains to 1.2150 in focus.

GBPUSD extended overnight gains after the Bank of England monetary policy statement was released.   They left interest rates unchanged at 0.10% and upgraded growth an inflation forecasts.  Outgoing Chief Economist Andy Haldane voted against  continuing with its existing programme of UK government bond purchases.

UK GDP growth was revised higher, to 7.25% in 2021 while inflation rose to 2.31%.  As usual policymakers hedged themselves saying, “The outlook for the economy, and particularly the relative movement in demand and supply, remains uncertain. It continues to depend on the evolution of the pandemic, measures taken to protect public health, and how households, businesses and financial markets respond to these developments

GBPUSD targets 1.4010 while above 1.3870.

USDJPY  traded in a 109.10-109.42 range, rallying in Asia, then retreating in Europe, to open at the session low.  The Bank of Japan monetary policy meeting minutes did not have any surprises. Policymakers are  happy with how the yield curve control program is working. Japan is considering extending its state of emergency for Tokyo and other cities by one month while easing some restrictions.

USDCAD is probing 3-year lows at 1.2238.. USDCAD is undermined by rising commodity prices, including  WTI oil at $65.46/barrel and lumber, and my widening CAD/US interest rate differentials, favouring Canada.  Both commodities are forecast to reach even higher levels as US fiscal and monetary stimulus unleashes a torrent of pent-up consumer demand.

Speeches from BoE Governor Andrew Bailey and ECB President Christine Lagarde are on tap.

The Canadian economic calendar is empty.

USDCAD Technical Outlook

The  intraday USDCAD technicals are bearish while prices are below 1.2290, looking for a break of support at 1.2240 to extend losses to 1.2210 and then 1.2160.  However, USDCAD is showing sings of being oversold on 4 hour charts suggesting a bounce to 1.2350 is possible before the downtrend resumes.  The weekly technicals are bearish below 1.2550, targeting 1.1935. For today, USDCAD support is 1.2240  and 1.2210.  Resistance is at 1.2290 and 1.2330.  Today’s Range 1.2230-1.2290

Chart: USDCAD weekly

Source: Saxo Bank

FX open, high, low, previous close

Source: Saxo Bank