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September 14, 2023
- ECB hikes 25 bps signals its done.
- Better than expected US data underpins US dollar.
- US dollar opens little changed after quiet overnight session.
FX at a Glance
USDCAD Snapshot: open: 1.3530-34, overnight range: 1.3515-1.3556, close 1.3550
USDCAD traded with a negative bias overnight due to bearish short-term technicals, broad-based but moderate US dollar weakness, and from steady to firm oil prices.
West Texas Intermediate (WTI) shrugged off yesterday’s 3.9 million barrel increase in US crude inventories for the week ending September 8. Instead, prices were underpinned by fears of a short-term supply/demand imbalance because of recent OPEC production cuts and exacerbated by floods in Libya. WTI cracked the $90.00/b level in the wake of the US Retail Sales report and is hovering around $89.96.
USDCAD downside may be limited if economists at RBC are correct in suggesting that Canada is already in the throes of an economic downturn. They cite per-person GDP declining for four consecutive quarters and rising unemployment as evidence.
Canada wholesale prices rose just 0.2% compared to the forecast for a 1.4% increase.
The intraday USDCAD technicals are bearish below 1.3560, looking for a decisive break below the 1.3490- 1.3520 area to set the stage for a drop to 1.3360. However, a topside break negates the downside pressure and argues for more 1.3400-1.3660 consolidation.
Longer term, the uptrend line from the June 2021 low is intact while prices are above 1.3150.
For today, USDCAD support is at 1.3410 and 1.3460. Resistance is at 1.3560 and 1.3590. Today’s range 1.3490-1.3560
Chart: USDCAD daily
G-10 FX recap
FX markets came alive in the wake of the ECB monetary policy statement. The ECB hiked rates by 25 bps as about 50% of the market expected and the statement suggested that this was the last rate increase for this cycle. It said: “Based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target.”
Analysts are perplexed. The macroeconomic projections for the Euro area were revised higher. Average inflation is expected at 5.3% in 2023 and 3.2% in 2024 and noted that underlying price pressures remained high. It would appear that the ECB economists are ignoring the inflationary risks from higher oil prices which many oil analysts expect to reach $100.00/b.
Making matters worse, US Retail Sales rose 0.6% in August (forecast 0.2%), Producer Prices jumped to 1.6% y/y form 1.2% y/y in July and weekly jobless claims were 220,000. These results underscored US economic outperformance vis-à-vis the eurozone, especially after the ECB lowered Eurozone growth expectations.
EURUSD dropped from a pre-meeting low of 1.0724 to 1.0655 before inching up to 1.0678 as the ECB press conference began. The EURUSD technicals are bearish with a break below 1.0630 targeting 1.0470. However, President Christine Lagarde’s speech is ongoing and her comments can completely alter the EURUSD landscape.
Asian equity indexes closed with gains. Japan’s Nikkei 225 index rose 1.41%, while Australia’s ASX climbed 0.46%. European bourses opened with modest gains. The UK FTSE 100 index is up 0.93%, while the German Dax indexes rose 0.15%. S&P 500 futures are up 0.35%.
GBPUSD traded in a 1.2414- 1.2507 range with the low seen post ECB. The currency recovered to 1.2437 during the ECB press conference but broad US dollar strength following today’s US data will limit gains.
USDJPY is bouncing in a 147.02-147.46 band and getting a bit of support following a report showing Japanese investors sold ¥3.63 trillion to buy foreign bonds.
AUDUSD climbed from 0.6415 to 0.6454 in the wake of a stronger-than-expected employment report. Australia’s unemployment rate remained unchanged at 3.7% in August, but the country added 64,900 new jobs. Unfortunately, most were part-time, and AUDUSD retreated to 0.6425 in NY. Nevertheless, the unemployment rate gives the RBA leeway for a tightening bias.
FX high, low, open
Bank of China Fix: today 7.1874, expected 7.2784, previous 7.1894.
Shanghai Shenzhen CSI 300 fell 0.08% to 3733.51.
Chart: USDCNY 1 month