Photo: Pixabay

April 28, 2023

  • Canada economy slows more than expected in February..
  • Bank of Japan leaves rates unchanged but announces monetary policy review.
  • US dollar ending April with NZD as worst performing currency and CHF as the best.

April FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3653-57, overnight range 1.3593-1.3666, close 1.3591

USDCAD is probing key resistance in the 1.3660. area following the surge in US dollar demand overnight. The Bank of Japan monetary policy statement was far more dovish than anyone expected which sank the yen and boosted the US dollar across the G-10 spectrum.

Canada ‘s economy grew at a tepid 0.1% in February, a sharp slowdown from the 0.6% growth seen in January. Even worse, most of the growth came from the public sector, meaning that economic growth is merely an illusion.

USDCAD gains got a bit of a lift from oil prices which traded with a negative bias in a $73.96-$75.48 range.  Oil prices are weighed down by concerns about a US recession and by the US dollar rally against commodity currencies.

It is month end and price action may get sloppy around the 11:00 am fixing time, although the poor performance of the S&P 500 in April suggests minimal rebalancing flows.

USDCAD Technical Outlook

The intraday USDCAD technicals are bullish while trading above 1.3600 looking for a decisive break above 1.3660 to extend gains to 1.3690.  A move below 1.3600 targets 1.3560.

The steep USDCAD uptrend from mid-April is intact above 1.3540 and is aiming for 1.3850, while a breach of 1.3540 suggest a retest of support at 1.3440.

For today, USDCAD support is at 1.3600 and 1.3560.  Resistance is at 1.3660 and 1.3700

Today’s range 1.3580-1.3680

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

Fx volatility awoke from its slumber when traders were surprised by the outcome of the Bank of Japan monetary policy meeting, disappointed by European data, and concerned over a jumbo EURUSD option expiry at 10: am.

The Bank of Japan kicked things off with Governor Kazuo Ueda’s inaugural meeting. The overnight rate remained unchanged at 0.10% which was expected, but the announcement of a 12-16 month monetary policy review wasn’t. USDJPY surged to 136.18 from 133.37.

The rest of the G-10 major currencies tumbled in the wake of the USDJPY rally, with the greenback getting additional support on increased recession concerns from a slowing domestic economy and expectations for at least two more Fed rate hikes.

Traders continue to be twitchy. The health of smaller US regional banks is a concern along side many analysts warning of further stock market losses ahead.

 Bloomberg’s John Authers pointed out today that “Apple Inc., Inc., Alphabet Inc., Meta, Microsoft Corp., Netflix Inc., Nvidia Corp., and Tesla Inc. have accounted for all the S&P 500’s growth this year. The other 492 stocks are down slightly.

The Fed’s favourite measure of inflation, Core-PCE rose 4.6% y/y, a tick higher than the 4.5% forecast but below the upwardly revised 4.7% result in March. The Employment Cost Index (ECI) rose a higher than expected 1.2% compared to 1.0% previously. These results will ensure the Fed’s focus remains on sticky inflation.

EURUSD is trading at the bottom of its overnight 1.0963-1.1039 range with the bottom occurring following today’s US data.  Weak German GDP data fueled the EURUSD selling pressure as did news of a $1 billion, 1.1000 EURUSD option strike expiring at 10:00 am EDT.

GBPUSD is in the middle of its 1.2448-1.2503 range with prices getting a bit of support from EURGBP selling.  The outlook for the UK economy has improved modestly and a BoE 25 bp rate hike on May 11 should keep EU and UK interest rate spreads constant.

AUDUSD  is on the defensive after falling from 0.6641to 0.6580 , thanks to broad US dollar demand after the BoJ rate decision.

Chicago PMI and Michigan Consumer Sentiment Index are ahead.

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

Source: Saxo Bank

China Snapshot

Bank of China Fix:  6.9240, Previous: 6.9207

Shanghai Shenzhen CSI 300 rose 1.02% to 4029.09.

China on National holiday from May 1-3.

Chart: USDCNY 1 month

Source: Bloomberg