April 7, 2022

  • Hawkish FOMC minutes roil markets
  • US weekly jobless claims decline
  • US dollar opens with gains, Commodity bloc underperforms

FX change at a glance: 24 hours

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2563-67, overnight range-1.2540-1.2570, close 1.2544

USDCAD rallied before and after the release of more hawkish than expected FOMC minutes yesterday and consolidated the gains overnight. The move was entirely due to broad US dollar demand which knocked commodities and equities for a loop.

Sliding oil prices exacerbated USDCAD gains when WTI oil fell from $103.42/barrel to $95.47/b overnight. Oil traders were spooked by concerns rising US rates would undermine global growth and reduce oil demand and by news of additional supply.

 The IEA announced member countries would release $60 million barrels of crude from strategic reserves. The US government had previously announced a 180 million drawdown from its strategic supply. The Energy Information Administration (EIA) report that US crude inventories increased 2.4 million barrels the previous week didn’t help sentiment. WTI recovered somewhat and is trading at 97.83/b.

WTI technicals are bullish above $94.20/b which guards long term uptrend support at $72.20/b.

USDCAD may find support tonight after Chrystia Freeland delivers the latest budget. The Liberal/NDP coalition-that-isn’t -a-coalition will continue to spend like drunken sailors on shore leave, claiming their actions will stimulate growth. Meanwhile, the Bank of Canada says the domestic economy is already over-stimulated.

The Bank of Canada is expected to raise rates by 0.50% next week which should offset expectations for a 50 point move from the Fed.

USDCAD technical outlook

The USDCAD technicals flipped to bullish with the break above 1.2510 and are looking for a move above 1.2590 to extend gains to the 1.2640-60 resistance area. A topside break extends gains to 1.2750.  USDCAD has tested both sides of the 1.2440-1.2650 range that contained price action since March 17.

For today, USDCAD support is at 1.2520 and 1.2490.  Resistance is at 1.2580 and 1.2620.  Today’s Range 1.2490-1.2590

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

US weekly jobless claims were a better than expected 166,000 and lower than last weeks downward revised result of 171,000.  The US dollar inched higher on the news.

The FOMC minutes caught traders off-guard. They shouldn’t have. Vice Chair Lael Brainard spoke about the need for aggressive rate hikes and a faster pace of balance sheet reduction on Tuesday. She said that the rapid pace of trimming the balance sheet would contribute to monetary policy tightening over and above expected rate hikes.

The FOMC minutes did not say anything different, but traders reacted like they were a “Eureka” moment.

Wall Street closed with losses, and Asia indexes followed suit. Japan’s Nikkei 225 index lost 1.69%, while Australia’s ASX 200 dropped 0.69%.

European bourses got over their fears about US rates and Ukraine. The French CAC index has gained 0.50%, and S&P 500 gave up earlier gains and are flat. Gold and oil prices rose modestly while the 10-year US Treasury yield is at 2.62%.

EURUSD is choppy in a 1.0866-1.0934 range and prices are flirting with 1.0900 in NY. Traders ignored Euro area Retail Sales (actual 0.3% m/m vs January 0.3%) and news that ECB President Christine Lagarde tested positive for COVID.

They didn’t ignore the minutes from the ECB meeting of March 10.  Policymakers are more hawkish than expected.  The minutes noted that “A large number of members held the view that the current high level of inflation and its persistence called for immediate further steps towards monetary policy normalisation.”

EURUSD continues to feel the fall-out from Russia’s invasion of Ukraine and dovish ECB monetary policy. The EURUSD technicals are bearish below 1.0980.

GBPUSD bounced in a 1.3064-1.3105 range. Prices saw a little support from UK House prices which rose 1.4%m/m in March. The Russian invasion hit closer to home after Shell announced it would take a $5.0 billion hit after writing off its Russian assets.

GBPUSD intraday technicals are bearish below 1.3160.

USDJPY consolidated its post-FOMC minute gains in a 123.48-123.92 range and maintains a bullish bias. The Bank of Japan’s ultra-easy monetary policy is in sharp contrast with the hawkish Fed and will continue to support USDJPY.

AUDUSD fully reversed this week’s gains. Prices peaked at 0.7650 on Tuesday then dropped steadily to 0.7476 in NY today. Traders ignored news that the trade surplus narrowed in February and that Westpac Bank is now predicting the RBA will raise rates in June.

Chart: US dollar Index (USDX)

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 6.3659 (Previous close 6.3793)

Shanghai Shenzhen CSI 300 fell 1.28% to 4,209.10

China Defense Ministry urges US to cancel its $95 Patriot Missile system, which includes training.

Chart: China 1 month

Source: Yahoo finance