Source: Federal Reserve
- FOMC minutes point to more restrictive monetary policy ahead
- US CPI hotter than expected
- US dollar surges post CPI
FX at a glance:
Source: IFXA Ltd/RP
USDCAD Snapshot: open 1.3795-99, overnight range 1.3792-1.3976, close 1.3817
USDCAD soared from 1.3790 to 1.3958 in the wake of the hotter than expected US inflation report. The 6.6% y/y in core inflation was a tick higher than predicted but it was enough to trash markets.
Wall Street futures plunged, the US 10-year Treasury yield soared to 4.036% from 3.90%, and the US dollar surged across the board.
WTI oil prices are on the defensive after falling from $90.00 to $86.34/b yesterday then consolidating in a $86.92-$87.99/b range overnight. Prices were depressed after OPEC and the Energy Information Administration lowered demand forecasts for 2022 and 2023. Opec said “The world economy has entered into a time of heightened uncertainty and rising challenges, amid ongoing high inflation levels, monetary tightening by major central banks, high sovereign debt levels in many regions as well as ongoing supply issues.”
USDCAD Technical outlook
The intraday technicals are bullish. Today’s break above the 2022 peak of 1.3858 targets 1.3990 then 1.4050. A move below 1.3660 suggests further losses to 1.3500, while a break above 1.3990 TARGETS 1.4050.
For today, USDCAD support is at 1.3860 and 1.3810. Resistance is at 1.3990 and 1.4050. Today’s range: 1.3910-1.4050
Chart: USDCAD 4 hour
Source: Saxo Bank
G-10 FX recap and outlook
Today’s US September CPI report was hotter than expected. The monthly result (actual 0.4% m/m vs 0.1% in August) and year of year (actual 8.2%, forecast 8.1%, Core 6.6%, forecast 6.5%, previous 6.3%) confirmed the hawkish FOMC minutes released yesterday.
The FOMC minutes confirmed the Fed’s focus is to keep raising interest rates until inflation falls toward the 2.0% target.
It wasn’t news.
A gaggle of Fed policymakers said the same thing in post-FOMC meeting speeches. Governor Michelle Bowman was the latest.
Yesterday she said, “Inflation is much too high, and I strongly believe that bringing inflation back to our target is a necessary condition for meeting the goals mandated by Congress of price stability and maximum employment on a sustainable basis.”
Geopolitical tensions remain elevated. Russia’s missile barrage on civilian targets prompted Germany to deliver four “high-tech, latest and greatest” missile defence systems to Ukraine, with President Biden promising similar defensive weapons. UK Defence Minister Ben Wallace said the UK will donate air defence missiles, which sounds good but may not happen if Liz Truss commandeers the weapons to defend her job
The UN General Assembly voted overwhelmingly to condemn Russia’s annexation of regions in Ukraine. Notably absent were India and China.
Ho-Hum. The news barely registered in FX markets. However, the inflation data did.
EURUSD traded sideways in a 0.9687-0.9743 range the collapsed to 0.9633 after the US data. Meanwhile, German inflation rose as expected. The German harmonized index of consumer prices rose 10.9% y/y in September and as per the press release “increased by leaps and bounds after the 7.9% rise in August.”
GBPUSD rallied raggedly in a 1.1060-1.1162 range supported in part by a modest recovery in the UK gilt market as 10-year gilt yields fell from 4.597% yesterday to 4.30% today. Prices exploded higher after the US CPI climbing to 1.1297, before reversing and dropping to 1.1200.
Chancellor Kwasi Kwarteng blamed the BoE for bond market turmoil, rather than acknowledge it was his budget that created the chaos. To that end, there is a lot of talk that conservative backbenchers are looking for replacements for Kwasi and the Prime Minister. Political uncertainty should limit gains.
USDJPY traded sideways in a 146.64-146.90 range overnight then popped to 147.50 in NY. The BoJ was nowhere to be seen despite the Finance Minister warning “we are watching FX with a high sense of urgency.”
AUDUSD traded in a 0.6267-0.6298 range then plunged to 0.6172.
US jobless claims rose 9,000 to 228,000.
FX open, high, low, previous close as of 6:00 am ET
Source: Saxo Bank
China Snapshot
Today’s Bank of China Fix: 7.1101, previous 7.1103
Shanghai Shenzhen CSI 300 fell 0.84% to 3752.67 previous 3784.31
A Bloomberg article suggests that since yuan fix has been around 7.10 for the past seven session, it means the PboC is attempting to limit losses and discourage speculative selling.
Chart: USDCNY 1 month
Source: Saxo Bank
