Source: YouTube

October 19, 2021

Treasury yields fall, stocks inch higher

Data void leaves central bank-speak to provide direction

US dollar slumps, commodity bloc currencies surge

FX at a Glance:

Source: IFXA/RP

USDCAD Snapshot   Open 1.2319-23, Overnight Range 1.2319-1.2381 Previous close 1.2379

USDCAD extended losses overnight, falling steadily from 1.2381 to 1.2319, and opened at the session low today.  Yesterday’s equity market angst was forgotten by the afternoon, and Wall Street’s mostly positive close translated into Asia market equity gains and positive risk sentiment.

Copper prices for December delivery on COMEX posted a record high yesterday, touching $4.8055/pound.  Coal prices are near record levels after China ordered power companies to stockpile supplies. WTI oil prices recouped most of yesterday’s losses but prices are a tad shy of the $83.80/b peak.

The BoC Business Outlook Survey (BOS) released yesterday showed 45% of respondents expected inflation above 3.0% over the next year due to ongoing fiscal stimulus, supply chain issues, and rising energy cost. The BOS noted “A growing number of respondents plan to increase wages to address challenges in attracting and retaining labour. Firms intend to continue passing increases in labour and other input costs on to their customers.”

Source: Bank of Canada

Conveniently, for BoC policymakers, the majority of business believe the drivers of higher inflation are temporary.  However, nowhere in the report did it say they those passing on higher costs to consumers, would lower them if inflation fell.

Analysts suggests that the Survey results mean the BoC will announce asset purchases will be tapered to $1 billion/week from $2.0 billion/week at next weeks meeting.

USDCAD continues to bee weighed down by higher equity prices with S&P 500 futures above 4,500. Today.

Technical view:  The intraday USDCAD technicals are bearish below 1.2380, looking for a break below 1.2305 to extend losses into the 1.2250-1.2275 support zone. A move above 1.2380 shifts the focus to 1.2500, while a break below 1.2220 suggests a retest of the 2021 low in the 1.2010 area. Longer term, Bollinger Bands and RSI’s suggest USDCAD is oversold.

For today, USDCAD support is at 1.2305 and 1.2270.  Resistance is 1.2350 and 1.2390. Today’s range 1.2280-1.2380

Chart USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

North Korea is flinging ballistic missiles, Russian and Chinese warships taunted Japan as they sailed through the narrow Tsugaru Strait.  US and Canadian warships did the same thing to China with a cruise through the Taiwan Strait.  Interest rates are rising while Energy prices and inflation are soaring. And equity traders continue to buy stocks.

Asia equity indexes closed higher, except for Australia’s ASX 200, which finished nearly unchanged.

European bourses are flat to higher, and US futures point to a positive open on Wall Street.  US 110-year Treasury yields have recovered some of their overnight losses and are 1.60% in early NY. WTI oil prices gained 1.20%, while gold prices are 0.72% higher.

It’s just another day in paradise with broad US dollar weakness attributed to rate hike pressures in other regions in an environment where US rate hikes are full priced in.

EURUSD extended yesterday’s NY rally, rising from 1.1610 to 1.1669 where it sits in early NY trading.

Traders ignored dovish ECB speak from Francois Villeroy who said there was no reason to raise interest rates.

His colleague Olli Rehn mostly agreed, noting that regarding inflation, “The counter evidence speaking for the transitory interpretation is quite convincing.  When looking at the longer-term expectations, there is no upward trend…(and) core inflation in the euro area is still subdued.” The intraday EURUSD technicals are bullish but failure to break resistance in the 1.1670 risks a drop to 1.1550.

GBPUSD rallied in Asia, breaking above resistance in the 1.3780 area to reach 1.3815 in NY while opening the door to further gains to 1.3900. The rally is fueled by yesterday’s hawkish comments by BoE Governor Andrew Bailey warning the Bank will “have to act” to reign in rising inflation, while designating his remarks as a “signal.”

USDJPY is consolidating last weeks gains in a 113.90-114.50 range with price action driven by US Treasury yields.

AUDUSD rallied from 0.7409 to 0.7475 due to broad US dollar weakness, and soaring commodity prices.   The RBA minutes did not reveal anything new, noting that the delta-variant coronavirus interrupted the Australian economic recovery. 

There are not any notable US or Canadian economic releases today.

Chart of the Day- Coal

Chart: Saxo Bank

FX open, high, low, previous close

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.4307, Previous 6.4300

Shanghai Shenzhen CSI 300 index rose 0.90%to 4,922.72

China reportedly telling power plants to stockpile coal

Chart: USDCNY 1 month

Source: Yahoo Finance