August 23, 2022

  • Greedy Opec talks of cutting production
  • US 10-year yield steady at 3.01%
  • US dollar underpinned by fears of hawkish Powell speech

FX at a glance:  

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3019-23, overnight range 1.3008-1.3061, close 1.3053

USDCAD is the marionette and the Fed’s outlook pulls the strings.  Bank of Canada Governor Tiff Macklem pretends it isn’t so.  He followed the Fed’s “inflation is transitory” line to the letter and failed to act when inflation rose above the BoC’s mandated 2.0% level.  Today, he is waiting for Fed Chair Powell’s Jackson Hole Symposium speech to learn if inflation has peaked, or still problematic.

To that end, USDCAD direction is dictated by the S&P 500.  When the index falls, USDCAD rises and vice versa. And those same stock traders are influenced by the bond market and the direction of the 10 -year Treasury yield.

USDCAD traders are ignoring the daily chop in oil prices, although large moves still have some impact.  WTI rallied from $86.80 yesterday to $92.04/barrel overnight after the Saudi oil minister, Prince Abdulaziz bin Salman, said Opec may have to cut production to deal with poor futures market liquidity.  The Cartel (and their pal Putin) was counting on WTI to remain near its Russian invasion peak of $147.00/b to fill their treasury’s. Putin expected the surge in prices to more than offset any lost oil sales due to sanctions.

German Chancellor Olaf Scholz was hoping Canada, with its vast oil and natural gas resources, would help replace lost Russian supplies.  Mr Scholz was very ill-informed. Canada does not have an energy pipeline between Alberta and the East Coast because the only pipeline Quebec will allow is one filled with oil revenues, not oil.   Quebec is Trudeau’s power base so…

The Canadian economic calendar is empty today and the rest of the week.

USDCAD Technical outlook

The USDCAD technicals are bullish above 1.2990, looking for a break above 1.3070 to extend gains to 1.3270, then 1.3370.  However, RSI and Bollinger band indicators warn that a correction is overdue as both are at extreme levels.   A move below 1.2959 targets 1.2950.

For today, USDCAD support is at 1.2970 and 1.2940.  Resistance is at 1.3060, and 1.3090. Today’s range: 1.2970-1.3060

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

There isn’t a whole lot of anything going on.

Asian equity indexes closed with losses led by Australia’s ASX 200 falling 1.21%. European bourses are trading mixed and lack conviction, while Wall Street equity futures are flat.

FX markets are the focus, and the euro is the story. The single currency is getting crushed as if Russia invaded Germany, not Ukraine. Vladimir Putin may have been Angela Merkel’s buddy, but he is no friend of Berlin, which he proved but cutting off energy supplies.

EURUSD is getting thrashed with prices dropping to 0.9901 from 0.9949 overnight.  The sell-off is due to Eurozone/US interest rate spreads widening in favour of the US, in addition to ongoing energy woes.

The Ukraine war has laid waste to the German (and Eurozone) economies, driving them to the brink of a recession. The preliminary August Eurozone Composite PMI fell to 49.2 from 49.9, and anything below 50 suggests the economy is contracting, and Manufacturing and Services PMI ticked lower as well. Thin, holiday markets exacerbate the selling pressure. EURUSD support is at 0.9600.

GBPUSD is struggling as well with prices plunging from1.2130 on August 17 to 1.1719 overnight.  UK Manufacturing, Composite, and Services PMI reports were all weaker than expected and that news alongside broad US dollar demand drove prices lower.  

USDJPY climbed to 137.70 from 137.05, underpinned by the 10-year US Treasury yield which rose to 3.043% in NY today. at 3.01%.

AUDUSD bounced in a 0.6858-0.6898 range. The impact from weaker than expected PMI data was short-lived and price action returned to tracking global risk sentiment.

NZDUSD tracked AUDUSD and traded in a 0.6162-0.6194 range.

There are no Canadian economic reports today and the US data is second tier.

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix: 6.8523, previous 6.8198

Shanghai Shenzhen CSI 300 fell 0.49% to 4,161.08

China plans to offer CNY 200 billion in loans to developers

Chart: USDCNY  1 month

Source: Bloomberg