February 19, 2020

USDCAD open (6:00 am EST) 1.3232-36   Overnight Range 1.3217-1.3259

USDCAD inched lower, dipping from 1.3230 to 1.3217, following the release of the Canadian inflation report.  Statistics Canada said: “The Consumer Price Index (CPI) rose 2.4% on a year-over-year basis in January, up from a 2.2% gain in December. Excluding gasoline, the CPI rose 2.0% in January. On a seasonally adjusted monthly basis, the CPI rose 0.1% in January, following a 0.4% increase in December.”

FX traders are fickle.  Coronavirus risk aversion due to the rising number of confirmed cases, has given way to coronavirus risk-seeking because the number of new cases is declining daily. Sentiment was helped by rumours of that the Chinese government will inject new monetary stimulus into the economy.

Source:  Statistics Canada

Asia stock markets closed with gains, European bourses are higher and US equity futures point to a higher open on Wall Street.  Oil prices surged upwards, even though gold prices extended the rally from last Wednesday.

The US dollar opened in NY with small gains against JPY, GBP and CHF, and small losses against the commodity currency bloc and EUR while JPY

Chart: Currency gain/loss (%) against the US dollar from New York close to New York open  (6:00 EST)

Source: Saxo Bank/IFXA

FX Recap and outlook:  Fed Chair Jerome Powell often describes the US economy as “being in a good place.” It appears that the phrase has become part of the global central bank lexicon.  It has been used by Bank of Canada Governor Stephen Poloz and today, by Reserve Bank of New Zealand Governor Adrian Orr.  No one would describe the Chinese economy as being in a “good place.”  However, officials there are reportedly planning to cut interest rates and adopt other measures to counter the impact of the coronavirus.

Traders are a tad cautious ahead of the release of the FOMC minutes from January 29.  They will be looking for insight into the Committee’s outlook for inflation, although Powell’s recent Congressional testimony degraded the usefulness of the minutes.

GBPUSD flatlined in Asia and attempted to rally after UK inflation data was better than expected.  January CPI rose 1.8% y/y, and Core CPI 1.6% y/y, which lifted GBPUSD to 1.3020 from 1.2990. However, EU/UK trade negotiation worries drove prices to 1.2978 in early NY trading.

EURUSD mirrored GBPUSD moves.  The risk for an acrimonious UK/EU trade negotiation, is another negative for the single currency, already suffering sluggish economic growth, a dovish central bank, and bearish technicals. Weaker than expected Eurozone Construction output data (actual -3.7% vs forecast 1.4%) didn’t help.

USDJPY rallied on the back of safe-haven trade unwinding, and steady US Treasury yields.  The technicals are bullish above 109.90, looking for a break above 110.60 to extend gains to 111.70.

AUDUSD and NZDUSD rallied in Asia and retreated in Europe.

Linger fears about the impact of the coronavirus on both economies tempered demand.

Oil prices surged.  WTI rose to $53.15 from $52.29/b, fueled by hopes for China economic stimulus rebooting crude demand, and US sanctions against Russia’s state-owned Rosneft oil company.  The American’s accused Rosneft of helping Venezuela avoid sanctions.

USDCAD traded down alongside the rise in oil prices, which is somewhat questionable.  The higher crude prices can’t benefit Canada if they can’t get crude to market and getting crude to market is problematic due to the railway blockades.  Prime Minister Justin Trudeau has decided that Canadian laws and court orders do not apply to the small number of Indigenous that have disrupted rail and Via rail passenger traffic across the country. Traders are also ignoring yesterday’s weaker than expected Manufacturing shipments data, which increases the odds of a BoC rate cut in two weeks.

Canada inflation data is due today, and January Core CPI is expected to rise to 1.8% y/y from 1.7%.

US data includes PPI, Building Permits, Housing Starts and the afternoon release of the FOMC minutes.

USDCAD Technical Outlook

The USDCAD technicals are bullish above 1.3190 which is the uptrend line from January 7.  Additional support resides in the 1.3220 area which were previous tops and bottoms. A break below 1.3210 opens the door to further losses to 1.3150.   A break above 1.3260 negates the downside and targets 1.3350.  for today, USDCAD support is at 1.3220 and 1.3190.  Resistance is at 1.3260 and 1.3290.  Today’s Range 1.3210-60

Chart: USDCAD 4 hour

Source: Saxo Bank