Source: Audubon Society
- Odds of Fed rate hike in March rise to 66%
- Risk sentiment sours as US 10-year Treasury yield hits 1.742%,
- US dollar opens with gains, EUR unchanged
FX at a Glance
Source: IFXA Ltd/RP
USDCAD Snapshot: Open 1.2763-67, Overnight Range-1.2757-1.2812, previous close 1.2657
Yesterday, USDCAD jumped from 1.2695 just before the FOMC minutes were released then climbed to 1.2854, into the close. The rally continued overnight. Prices peaked in Europe at 1.2812 and then retraced the entire move in early NY trading. So what changed?
The FOMC minutes revealed policymakers were slightly more hawkish than expected. They didn’t just discuss ending QE in March, they contemplated raising interest rates then, as well. That is a couple of months earlier than expected. Stocks tanked and the US 10-year Treasury yield climbed, touching 1.742% today.
WTI oil prices jumped to $79.34/barrel in NY today after closing at $77.20/b yesterday. Prices were underpinned after the EIA said US crude inventories fell 1.1 million barrel drop in the previous week.
The oil price rally helped the Canadian dollar to outperform against the Australian and New Zealand dollars.
Canada’s Trade surplus widened to $3.13 billion in November from $2.26 billion in October.
USDCAD is vulnerable to further gains if traders perceive that the Bank of Canada will lag Fed rate hikes.
Technical view: The intraday USDCAD technicals are bullish. The decisive breach above 1.2750 shifts the focus to 1.2860, then 1.2960, while prices are above 1.2705. A break below 1.2705 negates the uptrend and suggests further losses to 1.2620.
For today, USDCAD support is at 1.2750 and 1.2720. Resistance is at 1.2820 and 1.2860. Today’s Range 1.2750-1.2820
Chart USDCAD 4 hour
Source: Saxo Bank
G-10 FX recap and outlook
Traders just managed to overcome Omicron angst when the FOMC minutes afflicted them with rate hike fever. The FOMC minutes noted, “Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated.”
Wall Street took it on the chin. The NASDAQ lost 3.34%, the S&P 500 dropped 1.94%, and the Dow Jones fell 1.07%. However, they may bounce today as futures are flat to modestly higher.
Asia equity indexes closed deep in the red, led by a 2.88% plunge in Japan’s Nikkei 225 index and a 2.74% slump in Australia’s ASX 200. European bourses fell as well but are off their worst levels. The prospect of higher US rates spooked gold traders, and the shiny metal gave back all of this week’s gains.
Today’s US data did not offer any reason why the Fed would be less hawkish. Weekly Jobless claims were only 7,000 higher than last week’s result, which will not cause any concern. The US Trade deficit widened to 80.2 billion in November.
EURUSD churned and burned following the FOMC minutes but remained entrenched in the 1.1260-1.1390 range that has held since December 20. Eurozone PPI rose 1.8% m/m. German factory orders rose 3.7% m/m in November while German inflation slipped to 5.7% y/y in December compared to 6.0% in November. The EURUSD technicals are bearish below 1.1420.
GBPUSD chopped about in a 1.3492-1.3555 band. Traders ignored December Services PMI data (actual 53.6), a 10-month low as it suffered from the Omicron outbreak. Prices continue to be supported by expectations for further BoE rate hikes. GBPUSD technicals suggest further downside on a move below 1.3490, which risks a steeper slide to 1.3300.
USDJPY rallied to 116.18 overnight, then retreated despite the US 10-year Treasury yield remaining firm at 1.742%.
AUDUSD and NZDUSD suffered from the more hawkish than expected FOMC bias, with China’s Omicron outbreak also weighing on the currencies.
ISM December Services PMI index is expected at 66.9 compared to 69.1 in November
Chart of the Day: Gold (XAUUSD)
Source: Saxo Bank
FX open, high, low, previous close as of 6:00 am ET
Chart: Saxo Bank
Today’s Bank of China Fix 6.3728, previous 6.3779
Shanghai Shenzhen CSI 300 fell 1.02% to 4,818.23
Caixin December Services PMI 53.1 vs November 52.1
China reportedly told citizens to reduce long-haul trips on Lunar New Year and Close international airport in northern city of Xian
Chart: USDCNY 1 month
Source: Yahoo Finance