Photo: The Jim Henson Company

May 30, 2023

  • Debt ceiling concerns fades, and focus is on Central Banks.
  • Probabilities for Fed rate hike June 14 dip to 56/44.
  • USD drifts retreats after Treasury yields slide.

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3576-80, overnight range 1.3569-1.3606, close 1.3590

USDCAD drifted lower due to broad US dollar weakness after traders downgraded the odds for a Fed rate hike on June 14. The lower US Treasury yields put downward pressure on USDCAD.

USDCAD remains rangebound and BoC officials are mute. Canada’s March GDP report may provide some direction, but it is really US data driving the bus.

Oil price action is an after-thought for USDCAD traders.  WTI has drifted aimlessly in a $69.35-$74.05 range since May 8. China’s slower-than-expected economic growth is weighing on prices.

There are no Canadian economic releases today.

USDCAD Technical Outlook

USDCAD is trading with a mildly bearish bias inside a minor downtrend channel, between 1.3610 and 1.3560.  A move above 1.3610 targets 1.3660 while a move below 1.3560 suggests a retest of support at 1.3480.

For today, USDCAD support is at 1.3560 and 1.3520.  Resistance is at 1.3610 and 1.3650.

Today’s range 1.3550-1.3620

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook  

Global markets returned to full strength today and are slightly risk positive.

The risk that the US defaults on June 5 (formerly June 1) has faded but not disappeared. Nevertheless, markets are reacting like it’s a “done-deal,”  and knocked Treasury yields and the US dollar lower.

Attention has shifted to the June 14 FOMC meeting. The CME FedWatch odds for a 25 bp rate hike dropped from 66.4% Friday to 56 today. The Fed said policy decisions are data dependent and there is plenty of top-tier data on tap between now and decision day.

A spectre of FX intervention is creating unease for USDJPY and USDSEK traders. Japanese Deputy Finance Minister Masato Kanda told reporters that they are “closely watching currency moves and will act if necessary.”

Swedish Riksbank Deputy Governor Per Jansson expressed concern about SEK which lost 7.3% against the US dollar since May 8. He said, “It is impossible to quantify at what point, but sooner or later it will become an important factor for inflation and then it would cause a problem for monetary policy.”

EURUSD bottomed at 1.0674 overnight, then rallied to 1.0746 in NY thanks to lower odds of a Fed rate hike in June. Traders ignored soft Eurozone economic sentiment and employment expectations data preferring to await the inflation report due Thursday. A decisive break above 1.0740 would negate the two-week downtrend and target 1.0830.

GBPUSD rallied from  1.2329 to 1.2445 in NY as traders reassess the UK/US interest rate environment. . The market has priced in 100 bps of Bank of England tightening roughly a 50/50 chance that the Fed will raise rates in June.

USDJPY is in the middle of its 139.97-140.92 range.  Gains were capped following comments from Finance officials which raised the risk of FX intervention at some point.

AUDUSD firmed in a 0.6504-0.6558 range due widespread US dollar weakness, but the upside may be limited due to the latest RBA economic outlook. They lowered estimates for inflation and GDP.

Case-Shiller Home Price Indices, March Housing Price Index and Consumer Confidence for May are on tap.

FX open, high, low, previous close as of 6:00 am ET

Source: Bloomberg

China Snapshot

Bank of China Fix: 7.0818, previous 7.0575.

Shanghai Shenzhen CSI 300 rose 0.10% to 3837.75.

The highly touted China post-Covid zero recovery has stalled and previous economic problems, including property developer woes are weighing on growth. Unemployment in the 16-24 age group is around 20%. President Xi-Jinping increased restrictions on private businesses which spooked new investors.  Chine and US tensions are elevated due to trade and Taiwan issues.

Chart: USDCNY 6 month

Source: Bloomberg