• FOMC policymaker Kashkari’s hawkish outlook underpins greenback.
• US and Canadian data calendars are empty.
• US dollar opens with gains across the board.

FX at a Glance

Source: IFXA/RP

USDCAD Snapshot: open 1.3747, overnight range 1.3721-1.3761, close 1.3728

USDCAD rallied yesterday and again overnight after Minneapolis Fed President Neel Kashkari published an essay that suggested that it is too soon to cut interest rates.

Kashkari wrote that while the FOMC aims for a 2 percent inflation target, recent data suggest inflation may stabilize around 3 percent, indicating that further policy adjustments might be necessary to meet their dual mandate goals. He suggests that the neutral rate may be higher than previously anticipated and if true, monetary policy may not be as restrictive as believed.

Kashkari’s essay led to a widening of the Canadian and US 10-year interest rate differential to -85.2 bps, in favour of the US.

WTI oil prices did not get any boost from increased Middle East tensions.  Instead, rising US crude inventories and the risk of higher US interest rates derailing global growth drove WTI down from 78.40 to 76.91.

USDCAD Technicals

The intraday USDCAD technicals are bullish following the break above 1.3710 and are now looking for a break above the 1.3770-90 area to extend gains to the 1.3850-60 zone. A topside move will target the 2023 peak of 1.3905. A drop below 1.3710 will extend losses to 1.3680.

Longer term, the trend is bullish but unless resistance at 1.3900 is decisively broken, USDCAD is likely to churn in a 1.3600-1.3900 range.

For today USDCAD support is at 1.3720 and 1.3680. Resistance is at 1.3780 and 1.3810. Today’s range is 1.3720-1.3780.

Chart: USDCAD 1 day

Source: DailyFX

Fed Chatter, No Data

European trading was quieter than usual as many centers were closed for the Ascension Day holiday, including France and Germany. North American traders will be looking for a reason to trade but won’t get any inspiration from the US economic calendar today. It is empty except for mortgage applications. That puts the onus on comments by Federal Reserve Vice Chair (and voter) Philip Jefferson, Fed Governor Lisa Cook (voter), and Boston Fed President Susan Collins (non-voter) to steer market direction.

EURUSD

EURUSD is at the top of its 1.0734-1.0757 range. Recent economic data points to an improving economic outlook except for this morning’s German Industrial Production, which fell by 0.4% in March. The single currency is underpinned by EURSEK demand after Sweden’s Riksbank cut its benchmark rate by 25 bps to 3.75% and suggested that there could be two more 25bps rate cuts this year.

GBPUSD

GBPUSD is on the defensive and dropped from 1.2522 to 1.2468, with prices weighed down by caution ahead of tomorrow’s Bank of England monetary policy meeting and by EURGBP demand. The BoE is expected to leave rates on hold but express confidence that inflation will be on target this year, opening the door to a June rate cut.

USDJPY

USDJPY popped from 154.57 to 155.50 overnight, boosted by hawkish Fed comments and the lack of follow-through BoJ intervention. Policymakers continue to warn of consequences for disorderly FX moves, but so far, their intervention efforts have just allowed speculators and investors to buy USDJPY at the proverbial “better levels.”

AUDUSD and NZDUSD

AUDUSD traded in a 0.6564-0.6600 range, with prices trying to claw back losses after the RBA monetary policy update was on the dovish side. Policymakers hinted that the next rate move was likely to be lower.

NZDUSD traded negatively in a 0.5981-0.6015 range after closing at 0.6003 in NY. Broad US dollar demand on the back of hawkish Fed comments weighed on prices.

USDMXN

USDMXN traded firmer in a 16.8766-16.9380 range after non-voting FOMC member and Minneapolis Fed President Neel Kashkari’s hawkish comments. Traders were cautious ahead of Thursday’s April inflation report and the Banxico monetary policy meeting.

FX high, low, open (as of 6:00 am ET)

Source: Investing.com

China Snapshot

PBoC fix: 7.1016 vs exp. 7.2202 (prev. 7.1002).

Shanghai Shenzhen CSI 300 fell 0.79% to 3630.22.

IMF Deputy Managing Director Gita Gopinath warns that China and US tensions are threatening a “reversal” for the global economy.  She said that since the invasion of Ukraine, trade between the US and China has dropped 12%

Chart: USDCNY and USDCNH

Source: Investing.com