Source: Wikimedia

April 6, 2022

  • Fed Vice Chair Brainard spooks traders
  • FOMC minutes on tap today
  • US dollar firms as risk sentiment sours

FX change at a glance: 24 hours

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2489-93, overnight range-1.2485-1.2508, close 1.2487

USDCAD crushed support in the 1.2430-40 area yesterday morning driving the currency pair to 1.2402 before prices bounced hard, rallying to 1.2508 in early European trading today.

The price action coincided with S&P 500 futures spiking to yesterday’s peak and was exacerbated by WTI oil prices dropping to $99.92/barrel from $105.00.   The equity rally became a rout after hawkish comments from Fed Vice Chair Lael Brainard, suggesting the balance sheet would be reduced at a rapid pace.”

The US and allies are meeting today to discuss more Russian sanctions which will include people related to Putin. Canada’s Foreign Minister Melanie Joly thought they said Poutine, and she banned French fries and cheese curds

USDCAD gains are limited due to expectations that the BoC will raise rates 0.50% on April 13, and again on June 1, and by firm oil prices. However, if the S&P 500 slide gets momentum on a decisive break below 4460, the rise is negative risk sentiment will put a floor under USDCAD losses.

USDCAD technical outlook

The USDCAD technicals are bearish.  Yesterday’s move below support in the 1.2430 area appears to be a “false-break,” but the subsequent bounce failed at 1.2510, leaving the downtrend line from March 16 intact.  A move above 1.2510 targets 1.2560.

For today, USDCAD support is at 1.2440 and 1.2410.  Resistance is at 1.2510 and 1.2560.  Today’s Range 1.2440-1.2540

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

Fed Vice Chair Lael Brainard put to rest any concerns that the Fed will drag its heels regarding inflation.  Yesterday she stressed that “It is of paramount importance to get inflation down” and went on to say, “the Committee will continue tightening monetary policy methodically through a series of interest rate increases and by starting to reduce the balance sheet at a rapid pace as soon as our May meeting.”

Bond traders hurled.  The US 10-year Treasury yield soared to 2.64% today from 2.55% yesterday.

Equity traders took note and drove Wall Street lower, led by a 2.26% plunge in the Nasdaq.  Asia equity indexes followed suit, with Japan’s Nikkei 225 index dropping 1.50%, while Australia’s ASX 200 fell 0.50%.

Germany’s DAX index has fallen 1.52%, hammered by US rate concerns and the Russian/Ukraine war.  S&P 500 futures are sharply lower suggesting a negative open on Wall Street.  Oil managed to rally while gold dropped.

Traders are patiently waiting for the release of the FOMC minutes this afternoon, and they are looking for insight into the Fed’s balance sheet reduction plan.

EURUSD traded in a 1.0875-1.0926 range overnight with the spike in US 10-year yields fueling the losses.  The war in Ukraine and French politics are also weighing on prices.  Far-right candidate Marine Le Pen is gaining on President Emmanuel Macron in election polls, although Mr Macron still has a comfortable lead.  EURUSD technicals are bearish below 1.0950.

GBPUSD had an uneventful session with prices in a1.3047-1.3106 band.  GBPUSD found minor support from the Construction PMI index data, but US rate fears limited gains.

USDJPY rallied due to soaring Treasury yields, climbing to 124.04 from 123.55.  Those expecting the Bank of Japan to intervene in the FX market will be disappointed.  US/Japan interest rate differentials are driving prices and they will be underpinned as long as US rates rise and the BoJ’s caps 10-year JGB yields at 0.25%.

AUDUSD continues to consolidate post-RBA gains, trading in a 0.7563-0.7592 range while NZDUSD  traded in a 0.6936-0.6965 band.

There are no US data releases of note

Chart of the Day US 10-year Treasury yield


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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3799 (Previous close Friday 6.3509)

Shanghai Shenzhen CSI 300 fell 0.29% to 4,263.84

Caixin March Services PMI 42 (forecast 53, February 50.2)

Shanghai to remained locked down until city-wide Covid testing is completed.  The tests start April 6

Chart: China 1 month

Source: Saxo Bank