May 17, 2023
- US debt ceiling talks keeping traders on edge.
- Weak Chinese yuan sours global risk sentiment.
- US opens with gains across the board-JPY worst performer.
FX at a glance
Source: IFXA Ltd/RP
USDCAD Snapshot: open 1.3491-95, overnight range 1.3464-1.3534, close 1.3478
USDCAD looked like it was going to fall off a cliff yesterday after Canada’s April inflation rate accelerated rather than slowed. CPI rose 4.4% y/y (forecast 4.1%, March 4.3%). The results make the BoC’s June 7 monetary policy decision more of a toss-up. Hike or hold, that is the question.
However, the domestic data was quickly forgotten, and the attention turned to the US where April retail sales showed consumers were still spending, lowering the risk of a recession.
Oil prices retreated due to the rising US dollar, but WTI remains stuck in a broad $69.50-73.50/b range. The International Energy Agency (IEA) warned of a looming supply crunch and raised its forecast for global oil demand by 200,000.
USDCAD price action may get noisy int the run-up to the 10:00 am option expiry. Reportedly, a USDCAD 1.3450 strike on $1.4 billion expires and another $1.88 billion strike at 1.3400.
USDCAD Technical Outlook
The USDCAD technicals are dancing a two-step. Bullish, bearish, then bullish again, all within a broad 1.3300-1.3650 range. That range has held since April 14 and will likely continue to hold until the Bank of Canada monetary policy meeting June 7.
The intraday USDCAD technicals are bullish above 1.3460 looking for a move above 1.3550 to extend gains to 1.3650. A break below 1.3460 targets 1.3400, then 1.3360.
For today, USDCAD support is at 1.3460 and 1.3400. Resistance is at 1.3520 and 1.3550
Today’s range 1.3430-1.3530
Chart: USDCAD 4 hour
Source: Saxo Bank
G-10 FX recap and outlook
“I am woman. Hear me roar” is synonymous with Helen Reddy and Cruella de Ville.” In foreign exchange markets overnight, if the Chinese currency could talk, it would have proclaimed “I am yuan-hear me whimper.”
USDCNY (onshore) and USDCNH (offshore) climbed above 7.0000 for the first time since December and that rally added to the existing broad US dollar rally overnight. Traders are concerned that the highly anticipated, post-Covid zero Chinese recovery is sputtering and point to slower industrial production and retail sales as evidence.
Traders are also fretting about the rising risk of a US debt default. Many do not want to be involved until the issue is resolved.
Fed officials are not helping. Policymakers are giving mixed messages. Cleveland Fed President Loretta Mester said rates had not risen to a level where the Fed could pause. She does not vote, but her colleague Austan Goolsbee does. The Chicago Fed President said the May rate hike was a “close call” for him because he is concerned about the impact of the banking crisis on credit conditions.
All of the above is occurring against the backdrop of Ukraine close to launching a highly publicized “spring offensive”, a G-7 meeting that will rail against “he-who-must-not-be-named” (Xi Jinping) policies of economic coercion, and an upcoming speech by Fed Chair Powell on Friday.
Asian equity indexes closed mixed; the Nikkei 225 index rose 0.84% while Australia’s ASX 200 index dropped 0.49%. European bourses are not faring much better. The German Dax has risen 0.36%, the French CAC 40 is down 0.2% and the UK FTSE 100 index has lost 0.10%. Wall Street is poised to open in positive territory as S&P 500 futures have climbed 0.32% (as of 5:30 am PDT).
EURUSD is trading at the bottom of its 1.0822-1.0873 range. Yesterday’s US retail sales data suggested Americans could avoid a recession which weighed on EURUSD. Eurozone April HICP rose 0.6% m/m, a tick below 0.7% forecast.
The intraday EURUSD technicals are bearish with a break below 1.0850 suggesting a retest of the 1.0740 area.
GBPUSD traded negatively in a 1.2423-1.2492 range. Bank of England Governor Baily is not accepting any blame for the central banks’ inflation management. He blamed the war in Ukraine, saying no one could have foreseen its impact on costs. The GBPUSD uptrend from October 2022 is intact above 1.2200.
USDJPY rallied to 137.17 from 136.31 supported by the US 10-year Treasury yield hovering around 3.53%, broad US dollar demand and dovish BoJ monetary policy.
AUDUSD has given back most of May’s gains and dropped from 0.6670 to 0.6630 overnight. Fears that Chinese growth won’t live up to its advanced billing and widespread US dollar buying, weighed on prices.
US April Housing Starts rose 2.2% m/m while Building Permits fell 1.5% m/m.
FX open, high, low, previous close as of 6:00 am ET
Bank of China Fix: 6.9748 previous 6.9506
Shanghai Shenzhen CSI 300 fell 0.45% to 3960.17.
Chart: USDCNY 1 month