April 12, 2024
- China’s trade surplus shrinks dramatically.
- ECB and BoC rate outlook diverges from Fed.
- US dollar rebounds overnight-EUR underperforms.
FX at a Glance
Source: IFXA/RP
USDCAD Snapshot: open 1.3737, overnight range 1.3682-1.3760, close 1.3689.
USDCAD rallied overnight as traders embraced the interest rate divergence theme. The Montreal Futures Exchange says the probability that Bank of Canada cuts rates in June is 78%, while analysts from JPMorgan and Bank of American have downgraded Fed rate cut expectations to just one in December 2024.
WTI oil has inched higher into the weekend, rising from 85.41 to 86.43/b, partly due to fears of escalating Middle East tensions.
There are no Canadian economic releases today. Tuesday’s inflation data and Wednesday’s Federal budget will be the highlights next week.
USDCAD Technicals
The intraday USDCAD technicals are bullish above 1.3680, looking for a break above 1.3780 to extend gains to 1.3979, the October 13, 2022 peak. A break below 1.3680 targets 1.3630.
Bollinger band and RSI studies warn USDCAD is overbought and vulnerable to a correction.
For today, USDCAD support is at 1.3730 and 1.3680. Resistance is at 1.3780 and 1.3850. Today’s range is 1.3730-1.3830.
Chart: USDCAD daily
Source: DailyFX
“When you listen to fools, the mob rules.”
Black Sabbath sang about the folly of following dubious advice in 1981, and nothing has changed since. Analysts forecast 150 bps of Fed rate easing at the beginning of the year, and it was standing room only on that bandwagon. Following Wednesday’s US CPI, those same analysts are predicting just one or two rate cuts.
Hot Enuff for Ya?”
But was CPI that hot? Both headline and core CPI rose 0.4% m/m, and both were unchanged from February. The bottom of the cliff is littered with the carcasses of former interest rate doves.
State Street’s Chief Investment Officer, Lori Heinel, still expects the Fed to cut 50 bps at the June meeting. She told Bloomberg that the economy is not nearly as strong as it seems, and the Fed would want to front-load rate cuts ahead of the November election.
Tension Rising
The US dollar is also underpinned by fears that Iran will escalate the Israel/Hamas war by attacking Israel directly, or by having its proxies wage terrorist attacks in western cities.
Equities
Asian equity markets closed mixed. Japan’s Nikkei 225 index rose by 0.21% while disappointing Chinese trade data knocked Australia’s ASX 200 down by 0.33%. European bourses are perky, led by a 1.20% rise in the UK FTSE 100. S&P 500 futures are down 0.47%, and the 10-year Treasury yield sits at 4.532%.
EURUSD
EURUSD extended yesterday’s post-ECB sell-off in a 1.0650-1.0730 range and is at its overnight session low in NY. The market has reacted as though the ECB cut rates when all they did is reiterate what was needed to happen before any move would happen. Ms. Lagarde said, “If our updated assessment of the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission were to further increase our confidence that inflation is converging to our target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.” The EURUSD technicals are bearish, with a decisive break below 1.0640 targeting the October 2023 low of 1.0450.
GBPUSD
GBPUSD is at the bottom of its 1.2480-1.2559 range due to fallout from yesterday’s ECB hint that a June rate cut is likely. UK GDP rose 0.1% in February (as expected), while January’s result was revised up to 0.3% from 0.2%. Manufacturing and Industrial Production rose more than expected, but the results were not enough to offset broad US dollar strength.
USDJPY
USDJPY chopped about in a 152.97 to 153.40. Japan’s 5-year bond yield rose to 0.49%, which is a sign that traders expect the BoJ to raise rates, although it is hardly enough to make a dent in US/JGB interest rate differentials.
AUDUSD and NZDUSD
AUDUSD is trading at the bottom of its overnight 0.6503-0.6543 range due to both broad US dollar strength and weaker than expected Chinese trade data.
NZDUSD traded in a 0.5970-0.6011 range with price action tracking US dollar sentiment. Electronic Card Sales improved to -0.7 from -1.8% in February while NZ Business PMI ticked lower to 47.1 from 49.1.
USDMXN
USDMXN is steady in a 16.4255-16.5115 range and opened little changed from yesterday. USMXN gains are facing headwinds from “nearshoring” trends, which is the term applied to US manufacturing seeking cheap labor close to home. Mexico has already usurped Canada’s position as America’s largest trading partner.
FX high, low, open (as of 6:00 am ET)
Source: Investing.com
China Snapshot
PBoC fix: 7.0968 vs exp. 7.2622 (prev. 7.0959).
Shanghai Shenzhen CSI 300 fell 0.81% to 3476.84.
China’s trade surplus shrunk to $58.55 billion in March, from $125.16 b (forecast $70.2 b)
China’s plans to export the country to 5.0%+ growth hit a speed bump as Exports fell 7.5% y/y in March, and imports dropped 1.9%.
President Xi Jinping and his cronies have decreed that the way to improve stock market gains is by more supervision. Perhaps they believe the heavy hand of the state will counter-act the property developer debacle and stem the outflow of foreign business leaders who are leaving the country in droves.
Chart: USDCNY and USDCNH 4 hour
Source: Investing.com
