April 22, 2022

  • Fed Powell embraces the hawk within
  • Canada Retail Sales a tad better than expected
  • US dollar opens sharply higher on rate hike fears

FX change at a glance: 24 hours

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2678-82, overnight range 1.2569-1.2682, previous close 1.2584

Fed Chair Jerome Powell was hungry, and the Loonie was on the menu. Mr Powell’s almost confirmation of a 50bp rate hike on May 4, made USDCAD traders forget that not only was the Bank of Canada leading the rate hike race, but Governor Macklem did not discount a 0.75% hike on June 1.

USDCAD soared from Thursday’s low of 1.2450 to 1.2684 overnight, before easing to 1.2670 in NY after 10-year Treasury yields retreated from 2.974% to 2.916%trading. The 1.48% drop in the S&P 500 index yesterday, a drop in oil prices, fueled the rally.

Canada Retail Sales rose 0.1% m/m in March a tad better than the -0.1% forecast.  Core-Retail sales were rising 2.1%, which beat forecasts, but was below the upwardly revised 2.9% in January. StatsCanada is predicting Retail Sales rose 1.4% m/m in March.

Industrial Product Prices surged 4.0% m/m in March, which Statistics Canada says is the largest monthly change on record.  Raw Materials Prices jumped 11.8% in the same period.

USDCAD inched lower as today’s data supports an aggressive boC inflation fighting posture.

USDCAD technical outlook  

The intraday technicals turned bullish with the break above 1.2610 with a move above 1.2680 targetting 1.2750.  A failure to take out 1.2680 suggests the recent rally is just noise and implies further 1.2450-1.2680 range trading.

For today, USDCAD support is at 1.2610 and 1.2570.  Resistance is at 1.2680 and 1.2710.  Today’s Range 1.2610-1.2710.

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

Traders of a certain vintage will remember a late 1970’s ad for a brokerage with the tag-line “When E. F. Hutton talks, people listen.”  The 2022 version is “When Fed Chair Powell talks,…”

Numerous Fed officials, TV talking heads, economists, and analysts have spoken of the need for an aggressive Fed response in the wake of soaring US inflation which touched 8.5% in March. So, when Fed Chair Jerome Powell stated the obvious, it should not have been a big deal. Traders thought different and sold bonds and equities while aggressively buying US dollars.

Mr Powell essentially confirmed a 0.50% rate hike on May 4, saying, “It is appropriate in my view to be moving a little more quickly, then added, “I also think there’s something in the idea of front-end loading.”

Asia markets closed lower. Japan’s Nikkei 225 fell 1.63% due to fiscal stimulus plans, higher US Treasury yields and FX intervention rumours.  Australia’s ASX 200 lost 1.57% on softer commodities and US rate hike concerns. commodity prices.

European bourses are in the red but above their worst levels.  The German DAX index is down 1.54% and the UK FTSE 100 is 0.67% lower. S&P 500 and DJIA futures are in negative territory. Gold is trading at $1,937.00 and WTI oil is $102.83/barrel.

Geopolitical issues abound, chief among them the war in Ukraine. In addition, French presidential elections are Sunday. Incumbent President Emmanuel Macron is expected to win, but with a narrower margin of victory than in 2017.

EURUSD rallied to 1.0933 yesterday after somewhat hawkish comments from ECB officials suggesting a July rate hike was possible. ECB President Lagarde put a damper on that view when she said risks to growth were skewed to the downside. Today, she reportedly asked policymakers to refrain from airing dissenting views until the Monday following a policy meeting. (If you don’t like what they say, don’t let them speak).

Mr Powell’s comments trashed EURUSD driving it to an overnight low of 1.0791, before prices inched back to 1.0810 in NY. Higher than expected Eurozone April Manufacturing and Services PPI data gave the single currency a modicum of support. The EURUSD technicals are bearish below 1.1000.

GBPUSD was trapped in a 1.2980-1.3080 range for the past week. Prices got a bit of support yesterday when BoE policymaker Catherine Mann warned of higher rates due to rising inflation. Traders have price in 0.150 bps of rate hikes by year-end, which would take the overnight rate to 2.25%. UK Retail Sales were below expectations in March, falling 1.4% m/m (forecast -0.3%).  It wasn’t all bad as the Office for National Statistics noted “retail remains 2.2% above its pre-pandemic level.”

 The US rate outlook overshadowed the domestic view and GBPUSD blasted below the 1.2980 floor and fell to 1.2864 in Europe.

USDJPY consolidated this week’s gains in a wide 127.75-128.68 range with prices sitting at 128.35 in NY. US Treasury Secretary Janet Yellen and Japanese Finance Minister Suzuki reportedly discussed “joint intervention” due to the recent sharp USDJPY moves.

AUDUSD dropped from 0.7376 to 0.7299 and NZDUSD dropped to 0.6670 from 0.6735 due to Powell’s comments and falling commodity prices.

Chart: GBPUSD daily

Source: Saxo Bank

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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.4596 (Previous Fix 6.4098)

Shanghai Shenzhen CSI 300 rose 0.44% to 4,013.25

China FX Regulator Wang Chunying tries to calm currency market saying, “”Of course, the foreign exchange regulator will also… closely monitor the pace of the monetary policy changes by the U.S. Fed and their spillover impact, evaluate the operations of our country’s foreign exchange market in real time and effectively maintain market stability.”

Chart: China 1 month

Source: Yahoo Finance