May 12, 2023

  • Renewed regional bank woes sours risk sentiment.
  • US debt default risk sparks safe-haven demand.
  • US dollar ends week with gains except against safe-haven currencies.

Weekly FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3491-95, overnight range 1.3482-1.3505, close 1.3490

USDCAD soared yesterday then traded narrowly overnight as US debt default fears sparked safe-haven demand for the greenback. American interest rates and political issues drive FX direction and USDCAD is just along for the ride. USDCAD is down 0.73% since Monday’s open in NY trading today

Oil prices retreated mainly due to the resurgent US dollar. They fell from $73.44/b yesterday to $70.19 overnight, before climbing to $71.21 in early NY. The downside may be limited following news that US Energy Secretary Jennifer Granholm said the government would begin replenishing Strategic Petroleum Reserves after June. In addition, Opec upped its Chinese demand forecast.

USDCAD Technical Outlook

The intraday USDCAD technicals are bullish above 1.3450, looking for a break above 1.3520 to extend gains to the 1.3550-60 area.  A topside break targets 1.3660 while a move below 1.3450 puts 1.3330 in play.

Fibonacci retracement analysis of the March April range suggests a break of 1.3512 will lead to a test of 1.3645.

For today, USDCAD support is at 1.3460 and 1.3410.  Resistance is at 1.3520 and 1.3560

Today’s range 1.3460-1.3550

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

There are plenty of risks for traders to worry about, but fears of a US default are not one of them. 

America has never defaulted since 1776 and it won’t in 2023. That’s because the debt ceiling is merely a number plucked out of thin air. The “negotiations” are an illusion, all smoke and mirrors, designed to make politicians look like fiscally-responsible stewards of the country’s finances.  

There are no penalties for blowing through it. No one will be sent to jail. No one will get fined. If you buy US dollars on debt default fears, you need to own US dollar puts.

US regional bank woes have not disappeared. PacWest Bank announced a 9.5% drop in deposits in early May, which added to market unease.

EURUSD suffered in the wake of the US political drama and traded in a 1.0900-1.0935 range. There was a dearth of market-moving domestic economic data which left US dollar sentiment to dictate direction. EURUSD technicals are bearish below 1.0980 with a break of 1.0900 targeting the September 2022 uptrend line at 1.0850.

GBPUSD is trading near the top of its 1.2508-1.2539 range. The UK economy shrank in March falling 0.3%, but grew 0.1% q/q, which took the sting out of the March numbers. It wasn’t a surprise as BoE Governor Bailey said as much yesterday. The BoE hiked rates 25 bps yesterday, while not discounting further hikes.  The BoE had little to do with yesterday’s plunge from 1.2615 to 1.2495. It was because of widespread risk aversion from US debt ceiling jitters.

USDJPY traded quietly in a 134.41-134.90 range. A bout of safe-haven demand for the yen due to caution around the US debt ceiling drama and the lingering impact of this week’s drop in the US 10-year yield limits the upside.

AUDUSD traded in a 0.6685-0.6705 range overnight, consolidating yesterdays losses. American debt ceiling concerns and soft China data are weighing on prices. The Australian trade minister is in Beijing in an attempt to jump-start bilateral trade. It took a hit when China had a temper tantrum after Australia demanded an inquiry into China’s role in creating Covid-19.

NZDUSD dropped to 0.6232 from 0.6299 and is the worst performing G-10 major currency since Monday’s NY open.

US Michigan Consumer Sentiment Index is due.

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

Source: Bloomberg

China Snapshot

Bank of China Fix: 6.9481 previous 6.9101.

Shanghai Shenzhen CSI 300 fell 1.33% to 3937.76.

Mainland stocks weighed down by falling corporate loans in March, raising fears that the post-covid zero economic rebound has hit a wall.

Chart: USDCNY 1 month

Source: Bloomberg