Source: Wikimedia

March 7, 2022

  • Stocks tank, oil soars on speculation of Russian oil sanctions
  • Thursday’s ECB overshadowed by Russian/Ukraine war
  • Commodity currency bloc outperforms against US dollar

FX at a Glance 24 hours

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2722-26, overnight range-1.2688-1.2755, close 1.2729

USDCAD churned in a relatively narrow range considering WTI oil spiked 13% at one point overnight. Safe-haven demand for US dollars following threatening rhetoric from Putin and Russia competed with speculative demand for Canadian dollars on soaring oil prices. Ultimately, the flows canceled each other and USDCAD opened nearly unchanged from Friday’s close.

News that the US and EU are contemplating banning Russian oil boosted oil prices. The gains were exacerbated after Bank of America analysts said that if Russian oil exports are halted, it would lead to a 5 million barrel/day global production shortfall and drive WTI to $200.00/barrel.

The US administration is looking to heavily-sanctioned Venezuela to help alleviate a domestic oil supply crunch. Biden obviously considers American’s having to pay $6.00 per gallon for gas to be a more pressing concern than Venezuela’s terrorist, narcotic, and human trafficking issues. Alberta Energy Minister Sonya Savage is jumping up and down and waving at US politicians saying “hey guys. We have oil. Lots of it.”

Arguably USDCAD topside is limited by both high oil prices and Bank of Canada plans to continue hiking interest rates.

USDCAD technical outlook

The USDCAD technicals are modestly bearish but unable to get much downside traction from the surge in WTI oil prices. USDCAD is bearish below 1.2760, looking for a break of 1.2680, then 1.2640 to extend losses to 1.2550.  A move above 1.2780 targets the 1.2840-60 zone.

For today, USDCAD support is at 1.2680 and 1.2640.  Resistance is at 1.2760 and 1.2810. Today’s Range 1.2640-1.2740

Chart USDCAD and WTI oil 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

It was another headline-driven “risk-off” session overnight. Reports claiming Russia is targeting civilians, and promises of more Western sanctions against Russia, especially energy exports, sparked fresh demand for safe-haven currencies and bonds.

The most damaging were the headlines suggesting the Western governments and the US were discussing a total ban of Russian oil imports.  The news sent WTI to 129.97/b from 115.02 at Friday’s close but prices retreated steadily to $118.00 in NY.

The drop in crude prices lifted S&P500 futures from their overnight low but even so, Wall Street is poised to open in negative territory compared to Friday’s close.

The market doom and gloom seen in Asia and Europe has given way to a modestly improved outlook in NY.  The US dollar dropped to 98.88 in NY index after spiking to 99.43 in Asia. US Treasury yields have shifted from dropping due to risk aversion to rallying on US rate hike concerns.  The 10-year Treasury yield is trading at 1.794% from an Asia low of 1.671%.

The Western world has embraced escalating Russian sanctions as the best way to end the war. However, a former UK Deputy Foreign Minister, Alan Duncan, warned about the need to “not to sanction ourselves.” He was concerned that sanctioning Russian gas could result in there not being any gas in Europe.

EURUSD has regained more than half of its overnight losses, rising to 1.0905 after an overnight range of 1.0807-1.0953. German Factory orders rose 1.8% m/m in January, but the news was ignored.  Instead, the focus was on Russia and Ukraine and fears that the hostilities have handcuffed ECB ‘s ability to normalize monetary policy. 

GBPUSD traded in a 1.3143-1.3244 range with price action dictated by the prevailing risk sentiment.   GBPUSD is also suffering from fears that the BoE may have to delay raising rates to avoid exacerbating a slowing economy due to the impact of Russian sanctions on the UK and global economy.

USDJPY traded rallied, rising from 114.82-115.21 range, as the negative risk sentiment faded, and the focus returned to the prospect of higher US interest rates.

AUDUSD traded in a 0.7358-0.7440 range and has retreated from the peak as commodity prices gave back earlier gains. NZDUSD tracked AUDUSD moves.

The US and Canadian economic calendar is empty.

Chart of the Day: US Dollar Index (USDX)

Source: Saxo Bank

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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3478 previous 6.3288

Shanghai Shenzhen CSI 300 fell 3.19% to 4,352.78

January Trade balance $115.95 billion vs $94.46 b in December.

2022 GDP targets 5.5%, lowest since 1991. Premier Li Keqiang said government plans to keep jobless rate in the 5.5% area while creating over 11.0 million new jobs.

Monetary policy will provide “forceful” support to economy and that housing is for living not speculation.

Chart: China 1 month