August 12, 2024

• Foreign investors fleeing China.
• Focus on US PPI Tuesday, and Wednesday, CPI and Retail Sales
• US dollar opens mixed after quiet overnight session.

FX at a Glance

Source: IFXA/RP

USDCAD open 1.3721, overnight range 1.3719-1.3741, previous close 1.3731

USDCAD drifted lower despite another disappointing employment report on Friday. The labor market is weak across the board, with only government hiring, which does little to improve Canada’s poor productivity compared to the US. USDCAD has been under pressure due to the narrowing CAD/US interest rate spreads in favor of Canada and the unwinding of speculative long USDCAD positions.

However, further downside may be limited, especially if the US interest rate narrative includes three Fed rate cuts before year-end. In that case, the pressure on USDCAD from narrowing interest rate differentials could ease, capping downside moves.

WTI oil prices are firm, driven by geopolitical tensions in the Middle East. WTI rose from 76.72 to 77.77 on fears of supply disruptions, even as traders anticipate an oil glut heading into the new year.

USDCAD Technicals

The USDCAD rally from July 17 ended on August 6 with the move below 1.3810 which snapped the uptrend line.  Prices have consolidate the losses in a narrow 1.3710-1.3790 range since then but support in the 1.3690-1.3705 is vulnerable.

Fibonacci retracement analysis of the 11July-5August range suggests that the breech of 1.3768, the 50% retracement level followed by the break below the 61.8% level (1.3725) points to a retest of support at 1.3660.

For today, USDCAD support is at 1.3710 and 1.3680.  Resistance is at 1.3740 and 1.3770.  Today’s Range 1.3680-1.3750

Chart: USDCAD 4 hour

Source: DailyFX

Data Dump and Summer Vacations.

The upcoming US CPI, PPI, and Retail Sales reports are drawing significant attention for their potential implications on Fed monetary policy. Analysts predict the CPI release could lead to a 1.2% swing in the S&P 500. However, any impact is likely to be short-lived, as several major economic reports will follow ahead of the September 18 FOMC meeting, alongside the Kansas Fed’s Jackson Hole Symposium on August 23.

EURUSD

EURUSD is drifting within a narrow 1.0911-1.0930 range, with the Eurozone data calendar light this week and ECB officials seemingly on vacation.

GBPUSD

GBPUSD is steady in a 1.2747-1.2782 range ahead of UK employment data tomorrow and CPI, PPI, and Retail Sales reports on Wednesday. BoE board member Catherine Mann highlighted that services inflation remains too high and wages are rising faster than BoE models predicted. She voted against a rate cut at last week’s BoE meeting. The upcoming data may validate her concerns.

USDJPY

USDJPY bounced within a 146.60-147.45 range, with the low seen in Asia. Japan’s holiday reduced liquidity, but USDJPY was supported by comments from former BoJ policymaker Hideyuki Sakurai (2008-2013), warning that the BoJ may be unable to tighten policy further this year due to market turmoil.

AUDUSD and NZDUSD

 AUDUSD fluctuated within a 0.6565-0.6603 range, similar to Friday’s band. Selling pressure eased after RBA Deputy Governor Andrew Hauser cautioned that persistent inflation could prompt a rate hike. Governor Michele Bowman echoed similar concerns last week.

NZDUSD rose from an overnight low of 0.5989 to 0.6032 and is at the top of that range in New York. Thursday’s RBNZ monetary policy decision is a coin-flip, with a Bloomberg survey of 21 economists showing 12 expecting rates to remain unchanged, while the rest anticipate the start of an easing cycle. Recent hawkish rhetoric from RBNZ officials suggests they might prefer to overlook data favoring a rate cut to avoid embarrassment.

USDMXN

 USDMXN consolidated last week’s losses within an 18.7901-18.8846 range as US recession fears eased, and traders absorbed the widely anticipated Banxico rate cut on Thursday. The decision was split, reflecting a hawkish cut as policymakers remain concerned about potential inflation.

FX high, low, open (as of 6:00 am ET)

Source: Investing.com

China Snapshot

PBoC fix: 7.1458 vs exp. 7.1777 (prev. 7.1449)

Shanghai Shenzhen CSI 300 fell 0.17% to 3325.86.

Foreign investors are not impressed with Xi Jinping’s efforts at managing the economy. $15 billion of foreign money fled China in Q2. According to Bloomberg,  It the trend continues for the rest of the year, it will be the first annual outflow since 1990 when keeping data began.

Source: Bloomberg

Chart: USDCNY and USDCNH

Source: Investing.com