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November 8, 2023
- Fed Chair Powell headlines a rash of Fed-speak today.
- WTI oil prices plunge.
- US dollar opens steady but with a bid.
FX at a Glance
USDCAD Snapshot: open 1.3778-82, overnight range 1.3755-1.3796, close 1.3767
USDCAD is being whipped around by the ebb and flow of sentiment around US interest rates. Euphoria about the onset of a new easing cycle as early as the spring followed the release of US and Canadian employment reports and a somewhat dovish FOMC statement. Then, a cacophony of hawkish chirps by Fed officials forced a re-evaluation of that scenario, and USDCAD losses were quickly recouped.
USDCAD is also being underpinned by oil prices, which appear to be free-falling. WTI is trading at $76.22/barrel in NY, over 8.0% lower than it was on Friday. Oil traders were spooked by weak trade data from China, hawkish Fed speak, and yesterday’s massive 11.9 million barrels jump in US crude stockpiles last week, as reported by the American Petroleum Institute.
The minutes from the Bank of Canada’s monetary policy meeting two weeks ago are released at 1:30 pm today. They are not likely to offer any fresh insight.
The intraday technicals are bullish while prices are above 1.3720 which guards support at 1.3690. A decisive break above the 1.3790 area suggests further gains to 1.3880 while a move below 1.3670 suggests further looses to 1.3610.
Longer term, the uptrend channel that began at the beginning of August is guiding prices higher inside a 1.3590-1.3880 channel.
For today, USDCAD support at 1.3740 and 1.3710. Resistance at 1.3810 and 1.3840. Today’s expected trading range is 1.3730-1.3830
Chart: USDCAD daily
G-10 FX recap
Hawkish talk from Fed officials is the only game in town thanks to an acute shortage of quality US economic data. Yesterday, policymakers Austan Goolsbee, Michelle Bowman, Neel Kashkari, Christopher Waller, John Williams, and Lorie Logan offered opinions as to why US rates may need to rise, or at least stay at current levels for a sustained period. None of them suggested that a rate cut was even possible by June, which is when the CME’s FedWatch tool suggests a new easing cycle will begin.
More Fed talk is on the agenda today, with Fed Chair Jerome Powell’s opening remarks at the Division of Research and Statistics Centennial Conference in Washington, D.C. He isn’t expected to deviate from the message heard at last week’s FOMC press conference. In addition to Powell, other Fed officials speaking include NY Fed President John Williams, and Fed governor Philip Jefferson.
Asian equity markets finished a subdued session with Australia’s ASX 200 gaining 0.24% and Japan’s Nikkei 225 index falling 0.33%. European bourses are drifting either side of flat, while S&P 500 futures are close to unchanged.
And just when you think that US interest rates are the only thing to worry about, Russian Security Council Secretary Nikolai Patrushev said that the “destructive” policies of the US and its allies were increasing the risk that nuclear, chemical, or biological weapons will be used in Ukraine.
EURUSD traded negatively in a 1.0659-1.0703 range, with weaker-than-expected Eurozone Retail Sales (September actual -0.3% m/m, -2.9% y/y) underscoring the divergent US and eurozone economic growth trajectory.
GBPUSD is near the bottom of its 1.2242-1.2308 range, with prices weighed down by hawkish Fed speak and speculation that the BoE will cut rates next summer. The intraday technicals are bearish below 1.2290, looking for a break of support at 1.2220 to target 1.2130.
USDJPY traded with a bullish bias in a 150.34-150.80 band. Bank of Japan Governor Kazuo Ueda said that the BoJ does not need to wait until real wages turn positive to exit YCC, but only needs to see strong evidence it will happen. Finance Minister Shunichi Suzuki said inflation-adjusted real wages will be positive in June 2024.
AUDUSD was uninspired and traded in a 0.6420-0.6450 range. Traders are still digesting yesterday’s RBA 25 bp rate hike and its mildly hawkish statement. The RBA said that further monetary policy tightening will be data-dependent.
Today’s US economic calendar lacks top-tier data.
FX high, low, open
PBoC fix: today 7.1773, expected 7.2839, previous 7.1776.
Shanghai Shenzhen CSI 300 fell 0.24% to 3611.07.
PBoC Governor Pan Gongshen said that the economy would hit its GDP growth target of 5% but added “Transforming the economic growth mode is more important than pursuing a high growth rate.” He also said that the PBoC would keep the yuan stable to prevent the formation of one-sided and self-reinforcing market expectations, while reducing risks of the currency overshooting.
Chart: USDCNY (onshore) vs USDCNH (offshore) 3 months