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November 17, 2021

  • Canadian CPI jumps 0.7% m/m in October, Loonie sinks
  • Strong US data underpins Treasury yields
  • US dollar extends rally

FX at a Glance:

Source: IFXA Ltd/RP

USDCAD Snapshot   Open 1.2571-75, Overnight Range 1.2543-1.2585, Previous close 1.2561

USDCAD traded erratically overnight, rising to 1.2585, dropping to 1.2543, then rebounding to 1.2468, all because of ever-shifting US dollar sentiment against the majors.

Soft oil prices played a role with WTI dropping from $80.64/barrel to $79.73/b due to higher US crude inventories as reported by API and fears that the US and China would release crude from Strategic Petroleum Reserves.

USDCAD was also underpinned by broad US dollar demand from as Treasury yields climbed after better than expected US data.

Traders may have also noticed somewhat conflicting comments from Bank of Canada Governor Tiff Macklem and Deputy Governor Lawrence Schembri. Mr Macklem demonstrated prowess at “sucking and blowing” simultaneously in a letter to the UK Financial Times published November 15. He wrote that BoC forward guidance was based on outcome, which is another way of saying that “when they know what happened, they will tell Canadians what occurred.”

MackLem hinted at an earlier than expected rate hike if inflation is more persistent than expected.

Larry Schembri didn’t get the memo. He spoke about the BoC’s concern about uncertainty in the labour market. He expressed the need to close the “output gap” and reach “maximum employment” before rates can rise. The problem is that the BoC cannot quantify either measure which suggests Schembri is more emphatic that Canadian interest rates will remain unchanged.

Canada’s October CPI was a hot 0.7% m/m, which was as expected but well above September’s 0.4% rise. USDCAD rallied from 1.2540 to 1.2585 following the data. The move was either a case of “sell the rumour, buy the news” trading or traders resigned to the fact that the BoC has lost the plot. The second choice is probably the most accurate as the evidence as shown in the chart below. Is most compelling. Inflation is soaring but the BoC’s “preferred measures are unchanged.

Source:  Statistics Canada

Technical view:  The intraday USDCAD technicals are bullish above 1.2520 but need to break above resistance at 1.2605 or risk a return to 1.2450 support. The post-Covid downtrend from March 2020 remains intact below 1.2720.

For today, USDCAD support is at 1.2520 and 1.2470.  Resistance is 1.2590 and 1.2610. Today’s range 1.2490-1.2590

Chart USDCAD hourly

Source: Saxo Bank

G-10 FX recap and outlook

The prospect of higher US interest rates is underpinning the US dollar, and yesterday’s US retail sales, industrial production, and housing starts data reinforced that view. US 10-year Treasury yields rose from 1.597% to 1.64% in NY today.

President Joe Biden reportedly announces his Fed Chair decision within the next four days, with Lael Brainard tapped as the front-runner.

US Treasury Secretary Yellen says what Treasury Secretaries always say around this time of year. The government is running out of money unless the debt ceiling is raised or scrapped. Intuitively, that would be a reason to sell US dollars except the issue always gets resolved.

EURUSD broke support at 1.1300 in Asia and dropped to 1.1265 before recouping the losses to revisit yesterday’s NY closing rate of 1.1319 in early trading today. The uber-dovish outlook by ECB officials, combined with fears of rolling blackouts from soaring gas prices are weighing on the currency. 

German officials get a lot of the blame as they suspended the Nordstrom 2 approval process. The regulator said, “A certification for the operation of Nord Stream 2 will only be considered once the operator is organised in a legal shape compliant with German law.”

The intraday EURUSD technicals are bearish below 1.1510, looking for a drop to 1.1170.

GBPUSD rode a rollercoaster overnight rising and falling in a 1.3398-1.3472 band. UK PPI and CPI were higher than expected which, when combined with yesterday’s UK data, almost guarantees that the Bank of England hikes interest rates in December. However, that move is widely expected, and the topside is capped by broad US dollar strength.

USDJPY is riding the surge in US Treasury yields. USDJPY is probing resistance in the 11470-115.00 area, which has capped gains since March 2017.

AUDUSD and NZDUSD traded choppily but with a negative bias due to broad US dollar demand. NZDUSD is getting much support from government plans to end lockdowns after November 29 and fully open Auckland borders to fully vaccinated people by December 15.

US housing starts and building permits reports are on tap, alongside a gaggle of Fed speakers.

Chart of the Day:  Natural Gas Price Dutch TTF

Source: Yahoo Finance.com

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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3935 Previous 6.3924

Shanghai Shenzhen CSI 300 rose 0.05% to 4,885.75

China easing restrictions for some property developers

US Commerce Secretary claims China not living up to Phase 1 trade commitments

Chart: USDCNY 1 month

Source: Yahoo Finance