April 10, 2023

  • China stokes tensions with Taiwan, US pokes China.
  • Friday’s robust US NFP 236,000 (forecast 240) supports 25 bp rate hike.
  • Most of Europe closed for Easter Monday.

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3495-99, range since Friday 1.3486-1.3528, close 1.3513

USDCAD traded quietly since it closed on Thursday, mainly because, with the exception of the US, the major G-10 markets were closed for Good Friday and Easter Monday.  Prices moved to the top of the band in trading today after S&P 500 futures retreated 0.56%.

Canada’s job growth defied forecasters again on Thursday, rising 34,700 compared to the consensus for a gain of 12,000. The Bank of Canada wants to see evidence that recent labour market tightness was easing.  It hasn’t happened which suggests that Canadian interest rates are in no danger of being cut any time soon.

Traders promptly forgot about the domestic data in anticipation of the US nonfarm payrolls report. US NFP delivered a solid 236,000, which raised the odds for a 25 bp hike on May 3 to 66.0%. Of course, those odds will change with Wednesday’s US CPI data.

Analysts expect the BoC to leave rates unchanged at the monetary policy meeting, Wednesday.

USDCAD Technical Outlook

 The intraday technicals are bearish below 1.3540 looking for a move below 1.3470 to extend losses to the June 2022 uptrend line at 1.3400, and the 200-day moving average lurking at 1.3383. A decisive break below 1.3380 will extend losses to 1.3210.

For today, USDCAD support is at 1.3480 and 1.3430.  Resistance is at 1.3540 and 1.3570.

Today’s range 1.3470-1.3540


Source: Saxo Bank

G-10 FX recap and outlook

FX traders were inactive in a deathly dull overnight session thanks to market closures in most of the major trading hubs.

There was plenty to worry about, just no place to vent their fears.  For starters, Emperor Xi Jinping bullied Taiwan by “sealing off” the country in a supposed military exercise.  The move is to show Xi’s unhappiness with the US for allowing House leader Kevin McCarthy to meet with the Taiwan’s president.

The US reacted by sending an Arleigh Burke-class destroyer near of China’s key man-made islands in the South China Sea.

The US 10-year Treasury yield has bounced from Thursday’s low of 3.269% to 3.383%, which is still far below the 3.58% level seen on April 4. Some analysts view the drop as evidence bond traders fear a looming recession, while others claim the fall is due to investors taking advantage of yields that haven’t been seen in 15 years.

EURUSD is at the bottom of its 1.0858-1.0916 range since Friday suffering from mild risk aversion due to the drop in the S&P 500 futures and by upwardly revised US rate hike expectations.

GBPUSD is also at session lows in a 1.2368-1.2454 band. GBPUSD direction will be determined by Wall Street price action and with light volumes.

USDJPY extended its overnight gains rising to 133.22 from 131.50 on Friday.  The rise in the US 10-year Treasury yield to 3.37% supported prices. The new BoJ Governor, Kazuo Ueda’s comments about monetary policy “flexibility” raised concerns that the yield curve control policy could be scrapped.

AUDUSD traded sideways in a 0.6628-0.6679 band due to broad US dollar demand.

There are no Canadian or US economic reports of note today.

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

Source: Saxo Bank

China Snapshot

Bank of China Fix:  6.8764, Previous: 6.9747

Shanghai Shenzhen CSI 300 fell 0.45% to 4104.81.

Chart: USDCNY six months