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October 28, 2021

ECB leaves rates and policy unchanged

BoC concedes rate hawks may be right

US dollar opens defensively ahead of GDP

FX at a Glance:

Source: IFXA/RP

USDCAD Snapshot   Open 1.2364-68, Overnight Range 1.2357-1.2381, Previous close 1.2363

The Bank of Canada hawks dined on the doves at yesterday’s monetary policy meeting. Governor Tiff Macklem tacitly admitted the BoC got it wrong on its interest rate outlook.  He said “We now expect slack to be absorbed sooner, and that signals that we will be considering raising interest rates sooner than we previously thought. So if you want it in months, some time between April and September.”

The BoC raised its 2022 inflation forecast to 3.4% from 2.4% previously and downgraded 2021 GDP to 5.1% from 6.0%. It is starting to sound like “stagflation.”

USDCAD dropped from 1.2430 to 1.2300 on the news but prices quickly rebounded to 1.2362 where they closed, then drifted in a narrow range overnight. Sliding oil prices which touched $80.64/b overnight gave USDCAD a bit of support.

USDCAD bears are cautious ahead of next week’s FOMC meeting as the Fed may arrive at a similar outlook as the BoC and signal an early rate hike.

Technical view:  The intraday USDCAD technicals are bearish with the break below the minor uptrend line at 1.2380, which will revert to resistance. A move below support in the 1.22900-1.2300 area suggests further losses to 1.2240.  A break above 1.2430 puts 1.2500 in play.

For today, USDCAD support is at 1.2320 and 1.2290.  Resistance is 1.2390 and 1.2430. Today’s range 1.2330-1.2420

Chart USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

US data was mixed.   Weekly jobless claims rose a lower than expected 281,000, 10,000 less than last week.  That good news was offset by Q3 GDP which rose 2.0%, well below the 2.7% forecast

Source: US Bureau of Economic Analysis

EURUSD is trading defensively in a 1.1583-1.1614 range. Hotter than expected German inflation did not influence ECB policymakers.  They left interest rates unchanged and repeated rates will stay low until inflation is above 2.0%, which also implies inflation may go above target before rates increase.  EURUSD is choppy as ECB President Christine Lagarde’s press conference continues

GBPUSD is in the middle of its 1.3724-1.3773 range. Brexit tensions are weighing on prices. France detained a British trawler and is contemplating closing some ports to British fishing boats. Other French sanctions may include tighter border checks on UK goods. The short term GBPUSD technicals are bullish with the currency pair consolidating gains from the September 28 low.

USDJPY is trading at the bottom of its 113.51-113.86 range. The Bank of Japan left monetary policy unchanged; rates are -0.10%, and the 10-year JGB target is around 0%. The BoJ reduced its inflation forecasts as expected. USDJPY remains underpinned by US expectations for higher US interest rates.

AUDUSD has had a wild 48 hour, bouncing erratically in a 0.7481-0.7534 range. Asia equity indexes were under stress from the soft Wall Street close and ongoing Chinese issues drove the currency pair to the low. A plunging Australia bond market sent AUDUSD to the top. The RBA policy is to target the April 2024 bond at 0.1%. Today, they ignored that policy. The April 2024 bond yield spiked to 0.52% from 0.1%, raising expectations that RBA rate hikes will occur far sooner than expected.

Chart of the Day: AUDUSD 48 hours

Source:  Saxo Bank

FX open, high, low, previous close

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3957, Previous 6.3856

Shanghai Shenzhen CSI 300 fell 0.69%% to 4,864.14

The UK Guardian reports that one-third of China’s property developers will struggle to pay debts in the next 12 months.

Taiwan President Tsai Ing admitted US troops were training in the country. China is annoyed and its Foreign Minister said “Taiwan independence is a dead end, and there will also be no turning back for those who support it.”

Chart: USDCNY 1 month

Source: Yahoo Finance