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November 9, 2023
- More chatter from Fed Chair Powell today.
- Oil prices and US 10-year yields near recent lows.
- US dollar clawing back overnight losses in early NY trading.
FX at a Glance
USDCAD Snapshot: open 1.3786-90, overnight range 1.3782-1.3807, close 1.3794
USDCAD traded choppily, but in a relatively narrow range overnight, once again underpinned by soft oil prices and poor Chinese data.
China’s monthly and annual inflation readings were in negative territory which some analysts claim is further evidence that the world’s second biggest economy is struggling to get traction, thus hampering a global economic rebound.
Oil prices are defying risks of supply disruptions from an expanding Middle East conflict after the Hamas attack on Israeli women and children. The US bombed targets in Syria yesterday. WTI oil prices are suffering from the belief that there is ample supply despite the Saudi and Russian production cuts. One reason is that although Russia pledged to cut 300,000 barrels/day, they are actually shipping volumes close to a four month peak. The Opec chief claims the price volatility is due to speculators.
Yesterday’s Bank of Canada Summary of Deliberations unveiled a central bank that is struggling to leave interest rates unchanged against a back drop of sticky to rising inflation risks. The minutes warned that unchecked government spending could lead to higher rates because “by adding to demand at a faster pace than the growth of supply, government spending could get in the way of returning inflation to target.”
Senior Deputy Governor Carolyn Rogers delivers a financial Stability Update in Vancouver at 9:00 am PT.
The intraday technicals are bullish while prices are above 1.3770, looking for a break above 1.3830 to extend gains to 1.3870. A break below 1.3770 targets 1.3710
Longer term, the uptrend that began in June 2021 continues to guide prices higher and it is intact while USDCAD is above 1.3210 on a monthly chart. A break above 1.4000 would target 1.4170, then 1.4300.
For today, USDCAD support at 1.3770 and 1.3730. Resistance at 1.3830 and 1.3870. Today’s expected trading range is 1.3740-1.3840
Chart: USDCAD monthly
G-10 FX recap
Speculation that US interest rates have peaked is rampant and encouraged by the roughly 50 bp drop in the US 10-year Treasury yield, from 5.02% on October 18 to 4.473% yesterday. They have inched higher to 4.53% today. The slightly smaller than expected Treasury quarterly refunding announcement and yesterday’s mildly better than expected Treasury 10-year bond auction raised hopes that rates have peaked. The theory goes that lower US Treasury quarterly refunding needs combined with yesterday’s bond auction that finished with a tad better-than-anticipated result, suggests traders were happy buying Treasuries at lower yields.
The bond news had an outsized impact on markets even though it contradicted the previous day’s mostly hawkish Fed-speak.
It is likely to be another choppy trading day today, although the well-defined FX ranges should remain intact. Fed Chair Jerome Powell is having a Policy Panel Discussion at a research conference in Washington.
US weekly jobless claims rose by 1,000 less than the 218,000 forecasted, although last week’s numbers were revised 3,000 higher. The results were largely ignored.
EURUSD churned in a 1.0668-1.0716 range and is in the middle of that band in NY. The ECB Bulletin repeated the monetary policy statement, saying it held interest rates steady due to the inflation outlook while remaining committed to a data-driven approach to achieve the 2% inflation target.
GBPUSD seesawed in a 1.2258-1.2309 band. The currency found a top after Bank of England Chief Economist Huw Pill said interest rates needed to remain at 5.25% for an extended period to get inflation to its 2.0% target.
USDJPY traders are taunting the BoJ again and boosted the currency pair to 151.20 from 150.77 overnight, even though US 10-year Treasury yields are in the 4.50% area. BoJ Governor Kazuo Ueda insists that ending the yield curve control strategy and exiting negative rates is still far into the future.
AUDUSD spun its wheels in a 0.6396-0.6421 band as traders continue to assess the impact of the latest RBA hike against the outlook for US monetary policy.
FX high, low, open
PBoC fix: today 7.1773, expected 7.2839, previous 7.1776.
Shanghai Shenzhen CSI 300 rose 0.06% to 3612.83
Chart: USDCNY (onshore) vs USDCNH (offshore) 3 months
October CPI -0.1% m/m (forecast 0%, Sept 0.2%) -0.2% y/y, (forecast -0.1%, Sept 0%)
ING economists suggest that “deflation” is not an accurate way to describe the Chinese data as it is a result of sharply lower pork prices, that have an outsized impact on a low rate of underlying inflation.
Chart: USDCNY VS USDCNH