February 14, 2024
- US 10-year Treasury yield at 4.32%
- First Fed rate cut pushed out to June.
- US dollar consolidates yesterday’s post-CPI gains.
FX at a glance
Source: IFXA
USDCAD Snapshot: open 1.3533-37, overnight range 1.3533-1.3573, close 1.3566
USDCAD soared in the wake of the US inflation data as traders re-evaluated their US rate cut expectations and concluded that perhaps the Fed is right. Policymakers repeatedly said that they needed to see a sustainable drop in inflation, and yesterday’s numbers confirmed the need for caution.
USDCAD got an added lift after the 2-year CAD/US interest rate spread widened in favor of the US, although higher WTI oil prices helped soothe the pain.” WTI oil traded in a $77.53-$78.15 range with gains limited by yesterday’s API crude inventory report, which showed an increase of 8.52 million barrels in the week ending February 9.
Canadians are breathing a sigh of relief after Finance Minister Chrystia Freeland promised that the upcoming budget “will create conditions that will make it possible for interest rates to come down. There are reports that Prime Minister Trudeau doesn’t agree with Ms. Freeland as he reportedly repeated, “When I think about the biggest, most important economic policy this government would move forward, you’ll forgive me if I don’t think about monetary policy.”
USDCAD Technicals
USDCAD peaked at 1.3586 yesterday and since then are in a minor bearish channel between 1.3560 and 1.3510. A break below 1.3510 which was previous resistance would extend losses to 1.3460. A break above 1.3590 targets 1.3620, then 1.3660
Longer term, the downtrend line from November comes into play at 1.3590 while the uptrend line from the beginning of the year (daily chart) is at 1.3410 which suggests a 1.3300-1.3600 range.
For today, USDCAD support is at 1.3520 and 1.3490. Resistance is at 1.3580 and 1.3610. Today’s range is 1.3510-1.3590
Chart: USDCAD daily
Source: Daily FX
G-10 FX recap
Traders ignored Fed warnings about upside risks to inflation forecasts, and they paid the price yesterday. The hotter than expected January inflation report made believers out of skeptics, and they scrambled to close long bond and short US dollar positions. Wall Street tumbled, but even after a 1.37% slide in the S&P 500 and a 1.35% drop in the Dow Jones Industrial Average, those indexes remain at lofty levels.
The surge in the US 10-year Treasury yield from 4.17% to 4.326% at the close pushed expectations for the first rate cut back from May to June. The odds for a March rate cut have fallen to just 8.5%.
In his 60 minutes interview on Feb 4 (taped Feb 1), Fed Chair Jerome Powell said policymakers wanted to see more evidence that inflation is moving sustainability down to 2.0%. Friday’s nonfarm payrolls and yesterday’s CPI data validate the caution.
ING economists point out that the Fed’s preferred measure of inflation, core-PCE deflator, is tracking considerably lower than the CPI data, which suggests the Fed can still justify a rate cut or three.
Source: ING
Asian equity indexes followed Wall Street’s lead and closed with losses, except for the Hong Kong Hang Seng Index, which gained 0.84%. European bourses are in positive territory led by a 0.90% gain in the UK FTSE 100 index. SP 500 futures are up 0.50%.
EURUSD is spinning its wheels in a 1.0695-1.0719 band. Eurozone data was better than expected. Industrial Production rose 2.5% sa compared to a -0.2% in December while employment climbed 0.3%. The data was ignored but short term EURUSD support in the 1.0690 area limited the downside.
GBPUSD got spanked again and dropped to 1.2535 from 1.2612 after weaker than expected UK data. CPI was unchanged at 4.0% (forecast 4.2%), the Retail Price index fell 0.3% (forecast -0.1%) and PPI input and output indexes were lower than forecast. The results increase the risk of a May rate cut.
USDJPY hung on to yesterday’s gains and is trading near the top of its 150.35-150.81 overnight range. The rally was because of the steep jump in US Treasury yields with the 10-year Treasury yield at 4.32%. Japanese Finance Ministry officials are not happy and repeated the warnings about excessive yen moves.
AUDUSD traded in a 0.6446-0.6482 range and has managed to eke out a small gain on the back of the 0.50% rise in SP500 futures.
USDMXN traded in a 17.1267-17.2155 range but gave back some gains in NY and is trading at 17.1510. The currency moves are fueled by US rate cut sentiment.
There are no top-tier US economic reports today, but Chicago Fed President Austan Goolsbee is speaking
FX high, low, open (as of 6:00 am ET)
Source: Investing.com
China Snapshot
PBoC fix: closed 7.1036, expected 7.1996, previous 7.1063
Shanghai Shenzhen CSI 300 closed- Feb. 8/24- 3364.93.
Chinese markets will be closed -Lunar New Year
Chart: USDCNH daily
Source: Investing.com
