December 11, 2024
- China’s plans for Yuan boost US dollar.
- Bank of Canada expected to cut rates by 50 bps today/
- US dollar opens higher compared to Tuesday.
FX at a Glance
Source: IFXA/RP
USDCAD open 1.4189, overnight range,1.4159-1.4195, close 1.4181
USDCAD is trading with a bullish bias thanks in part to the wide-spread US dollar demand that was sparked by the Reuters story about the possibility that China allows the yuan to slide. That news was just another kick to the head of the Loonie which was already down because the slumping economy needs the Bank of Canada to slash interest rates. And that is exactly what the BoC will do today as they cut its benchmark rate by 50 bps to 3.25%.
Tiff Macklem and Deputy Governor Carolyn Rogers have been boasting how they have tamed inflation and have turned their attention to boosting economic growth. The recent economic data highlights and economy that is struggling so the policymakers have no choice but to aggressively lower rates. However, that outcome is fully reflected in the price (1.4180).
Oil prices traded sideways in a 68.43-69.61 range and are at the top of the band in NY. Further gains are limited by concerns of a supply glut in early 2025 and a lower risk of supply disruptions from the middle east.
USDCAD Technicals
The technicals are bullish while prices are trading above 1.4040 and are looking for a break above 1.4200 to extend gains to 1.4090. A break below support in the 1.4100-20 area will extend losses to 1.4040.
Longer term, in March 2020 USDCAD dropped below 1.4290 and despite 4 attempts in April, was never able to rally above that level again. USDCAD is still 100 bps below that level today, but that is the target if USDCAD can break above 1.4200 today. If not, a retest of support at 1.4100 is likely.
For today, USDCAD support is 1.4140 and 1.4100. Resistance is 1.4200 and 1.4250.
Today’s Range: 1.4120-1.4220.
Chart: USDCAD daily
Source: Investing.com
Sacrifice the Yuan for Tariff Defence
Donald Trump isn’t even President yet but world leaders are scrambling to curry favour and battle against his threats to increase tariffs. China President Xi Jinping did not fly to Mar-o-Lago to bow before Trump, like the “Governor of the great state of Canada.” Instead he and his minions are working feverishly to offset the impact of tariffs on exports. One solution is to devalue the currency to at least 7.5000 or else link the yuan with a basket of currencies rather than just the greenback. The news gave the US dollar a boost against the major G-10 currencies.
US Inflation: “Move along, Nothing to See”
US CPI met expectations and traders went back to sleep. November core-CPI rose 0.3% which was unchanged from October. A forecasters nailed the headline number which rose 2.7%. Today’s results will not do anything to prevent the Fed from cutting rates next week.
EURUSD
EURUSD traded quietly in a 1.0519-1.0539 range until the Chinese yuan devaluation story broke. Then it dropped to 1.0487 before grind back to 1.0503. Today’s US inflation data will determine direction until tomorrow’s ECB monetary policy meeting with a 25 bp rate cut priced in.
GBPUSD
GBPUSD is trading with a somewhat bullish bias in a 1.2713-1.2782 range. Prices are slowing recovering the shock of the yuan devaluation rumor but remain underpinned by EURGBP selling.
USDJPY
USDJPY rallied from 151.01 to 152.80 and is at 152.60 in NY. The gains were spurred by the report that China may allow the yuan to weaken. In addition, the rise in the US 10-year Treasury yield from 4.184 yesterday to 4.24% today and indecision around the outlook for Japanese interest rates. The BoJ meets December 18 and although most policymakers believe the conditions for another rate hike are falling into place, they are in no hurry to pull the trigger.
AUDUSD and NZDUSD
AUDUSD continued to trade with a negative bias in a 0.6337-0.6390 range in the wake of the Reuters report about China allowing a currency and because of dovish guidance from RBA Governor Michelle Bullock. She indicated that rates cuts were likely in early 2025. Traders are looking ahead to tomorrows employment data where a gain of 25,000 jobs is expected (previous 15,900),
NZDUSD mirrored AUDUSD moves and traded poorly in a 0.5762-0.5808 rang. The negative sentiment is due to broad US dollar strength, uncertainty around China’s growth prospects and the possibility of a 50 bp rate cut by RBNZ in February.
USDMXN
USDMXN is consolidating yesterday’s gains in a 20.1441-20.1805 range. Traders ignored Tuesday’s lower than expected Mexican consumer confidence reading (actual 47.4 vs 48.9 in October) and Monday’s slightly lower inflation data which supports a 25 bp Banxico rate cut and price action tracked broad US dollar moves.
FX high, low, open (as of 6:00 am ET)
Source: Investing.com
China Snapshot
PBoC Fix: 7.1843 vs exp. 7. 2379 (prev. 7.1876)
Shanghai Shenzhen CSI 300 fell 0.17% to 3988.83
Reuters is reporting that Chinese officials are debating whether to allow the yuan to weaken in 2025 to help combat Trump tariffs. The idea is a cheaper yuan makes Chinese exports cheaper which would help offset the impact of tariffs. Reuters cited a “source” at PBoC suggesting USDCNY rising to 7.5000
Chart: USDCNY and USDCNH
Source: Investing.com
