April 14, 2023

  • US Retail Sales weaker than expected.
  • Gold (XAUUSD) approaching all time high.
  • US drifts lower overnight, poised to end the week with losses.

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3314-18, overnight range 1.3303-1.3342, close 1.3340

USDCAD retreated with the improvement in global risk sentiment. The S&P 500 rebound is approaching its year-to -date peak as traders bet on lower US interest rates this year.  Higher oil prices and a narrowing of CAD/US interest rate differentials also weighed on prices.

USDCAD is also vulnerable to a sudden unwind of short CAD dollar positions which are close to record levels on the Chicago IMM.

WTI oil continues to consolidate its post-Opec production cut gains in a $80.00-$84.00/barrel range. Traders are torn between hopes of greatly increased Chinese demand and US recession risks reducing crude demand. In addition, the gap from the $75.00-$80 needs to be filled.

Canada Manufacturing Shipments fell 3.6% in February (forecast -2.7%) underscoring risks that the economy is slowing.

USDCAD Technical Outlook

 The intraday technicals are bearish below 1.3410, which guards the downtrend line from March 24, which comes into play at 1.3470.

The break below the 200 day moving average (1.3400) will revert to resistance and set the stage for further losses to 1.3220.

However, USDCAD is becoming oversold as the RSI and Bollinger Band indicators are close to extreme levels which points to some consolidation before the next leg lower.

For today, USDCAD support is at 1.3305 and 1.3280.  Resistance is at 1.3360 and 1.3400.

Today’s range 1.3305-1.3370

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

The US dollar is being shunned. Traders who embraced the currency in times of stress and a hawkish Fed are dumping greenbacks in favour of a younger model. It has been happening all year, but the selling has become more pronounced in the past week or so.

Bond traders believe a recession is imminent and think the Fed will be forced to cut rates. They have driven 10-year Treasury yields to 3.45% in anticipation. 

Yesterday’s US PPI data showed wholesale inflation falling sharply and was viewed as another sign that the inflation beast had been tamed.

Traders are not only convinced that the next Fed rate hike is the last rate hike for the cycle, but also that a new era of monetary easing will begin in the summer.   Atlanta Fed President Raphael Bostic agrees with the rate pause view. He said that recent data, including falling PPI, “are consistent with us moving one more time.”

US Retail Sales fell 1.0% m/m in March while the ex-autos component dropped 0.8% another indication that higher interest rates are working their way through the economy.

Fears of a recession are behind the steep rise in gold prices which are flirting with the all-time peak of $2074.88, August 7, 2020. XAUUSD has risen every month but one since November and is trading at $2038.26 in NY, after touching $2047.29 overnight. Central bank demand for gold and broad US dollar weakness contributed to the rally.

Wall Street futures are getting a boost after JPMorgan and Citibank quarterly earnings beat estimates.

EURUSD rallied from 1.1047 to 1.1075 supported by yesterday’s hawkish comments from a trio of ECB policymakers. The technical picture is bullish with the break above 1.0910 targeting 1.1230.

GBPUSD fell to 1.2468 from-1.2545 on fears the UK economy will underperform compared to the G-7. GBPUSD also retreated on profit-taking on the approach to major resistance in the 1.2550 area.

USDJPY traded in a 132.18-132.63 band due to the US 10-year Treasury yield sitting at 3.45% and dovish comments by BoJ Governor Kazuo Ueda. He reiterated early remarks saying the BoJ needs to maintain its monetary easing policy.

AUDUSD rallied from 0.6764 to 0.6793 on the back of improved risk sentiment and higher commodity prices.

Chart: Gold XAUUSD monthly

Source: Saxo Bank

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

Source: Saxo Bank

China Snapshot

Bank of China Fix:  6.8606, Previous: 6.8658.

Shanghai Shenzhen CSI 300 rose 0.57% to 4092.00.

PBOC Governor Yi Gang expects economy to grow around 5.0%. He said it is “stabilizing and rebounding.”

Chart: USDCNY 1 month

Source: Bloomberg