April 12, 2022

  • March US CPI 8.5% y/y, higher than expected
  • EU and German ZEW Surveys are weak
  • US dollar giving back overnight gains

FX change at a glance: 24 hours

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2657-61, overnight range 1.2583-1.2660, close 1.2634

USDCAD rallied as the S&P 500 fell and managed to retreat from its session peak as the equity index clawed back earlier losses. The retreat gained speed after the US inflation data. The market expected a “hot” number and that’s what they got.  USDCAD dropped to 1.2614 after opening at 1.2659.

USDCAD does not appear to be getting any benefit from the prospect that the Bank of Canada raises rates by 0.50% tomorrow, or from steady to firm oil prices.

WTI prices are underpinned by comments from Opec Secretary General Barkindo who warned that current and future sanctions on Russia could lead to a loss of 7.0 million barrels/day.

The BoC monetary policy meeting an Monetary Polciy Report due Wednesday, may undermine USDCAD if officials are more hawkish than expected.

USDCAD technical outlook

The intraday USDCAD technicals are bullish with the break above 1.2620 which shifts the target to 1.2688, the 200 day moving average. A topside break would extend gains to 1.2780.  A break below 1.2620 (100 day moving average, targets 1.2560.

For today, USDCAD support is at 1.2580 and 1.2660.  Resistance is at 1.2660 and 1.2690.  Today’s Range 1.2580-1.2660

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

 US CPI was a hotter than expected 8.5% y/y (forecast 8.4% y/y) in March, which is what the White House warned yesterday.

Press Secretary Jen Pataki said, “We expect March CPI headline inflation to be extraordinarily elevated due to Putin’s price hike.”

Her comments crushed bonds and accelerated losses on Wall Street, with the S&P 500 losing 1.69%, and the DJIA dropping 1.19%. The sell-off continued in Asia, where Japan’s Nikkei lost 1.81% and Australia’s ASX 200 fell 0.42%. Hong Kong’s Hang Seng Index and the Shanghai Shenzhen rose 0.52% and 1.96%, on talk of fresh stimulus.

Pataki’s warning took the wind out of the sails for today’s CPI release.  Traders sold the rumour and bought the news leading to a sharp rebound on Wall Street and the 10-year Treasury yield sliding to 2.704%.

European bourses are recouping overnight losses and Wall Steet will open in positive territory. Gold prices surged to $1,971.91 following the data while WTI oil is steady at $97.82/b.

Yesterday, Chicago Fed President Charles Evans said he wouldn’t oppose getting interest rates up to the “neutral setting,” which he said is 2.25% to 2.5%. A week ago, St Louis Fed President James Bullard was chirping about the necessity for rates to climb to 3.0-3.5%.

What’s the big deal?  The Fed had no problem cutting interest rates 1.25% in one fell swoop on March 3, 2020, to combat the pandemic. The pandemic is over. The economy does not need any stimulus, so why not just hike rates 1.25%, and then work on taming inflation?

Sri Lankan bondholders are not happy campers. The government defaulted on $51.0 billion of foreign debt, with the government blaming the pandemic and the Russian invasion of Ukraine for its inability to service its debt.

EURUSD is suffering from rising US interest rates and the fall-out from Russia invading Ukraine.  The single currency climbed to 1.0903 from 1.0852 following the US data.

The German and Euro area ZEW Survey underscored the worsening economic situation in the Eurozone.  German Economic Sentiment (-41) Expectations (-43) and Current Situation (-30.8) surveys were worse than last month. The Euro area Economic Sentiment survey was -43 compared to -38.7 in March. The results suggest Thursday’s ECB meeting may end with a hawkish outlook.

GBPUSD chopped about in a 1.3095-1.3049 range, little changed from yesterday’s band. The UK unemployment rate, (December-February) dropped to 3.8% (previous 3.9%) and is below its pre-pandemic level. Average earnings were higher, rising to 5.4% (including bonus) compared to 4.8% previously.

USDJPY traded in a 124.77-125.75 range.  Prices dropped from the peak in Europe and accelrated to the low after the US inflation data.  Traders ignored comments from the finance minister talking about the stability of the yen and how they are remaining vigilant.

AUDUSD and NZDUSD recouped overnight losses and are trading near the top of their ranges. NZDUSD is getting an extra lift on speculation the Reserve Bank of New Zealand will raise interest rates 0.50% tomorrow.

Chart: US Dollar Index (USDX) daily

Source: Saxo Bank

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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3795 (Previous close 6.3645)

Shanghai Shenzhen CSI 300 rose 1.95% to 4,179.97

Reports China Securities Regulator is to implement supportive policy measures including capital market financing, M&A, and restructuring for those severely impacted by COVID lift Chinese stock markets.

Chart: China   hourly, 1 month

Source: Saxo Bank