China’s Evergrande woes, and soaring gas prices rattle markets
Canada election today
US dollar soars on safe-haven demand
FX at a Glance:
USDCAD Snapshot Open 1.2830-34, Overnight Range 1.2762-1.2869, Previous close 1.2772
USDCAD shot higher Friday, rising from 1.2637 to close at 1.2762. It extended the move overnight and climbed to 1.2869 early NY trading, coinciding with a steeper slide in S&P 500 futures.
It is easy to believe the move is a reaction to the possibility of another Trudeau-led minority government, but that’s not the case. Neither domestic politics nor economic data has had much influence on the Loonie.
USDCAD soared n the back of broad-based safe-haven demand for US dollars due to fears of contagion from China property developer woes, soaring energy prices, US debt ceiling concerns, and the possibility of a hawkish FOMC meeting Wednesday. The gains were exaggerated by thin markets due to holiday closures in many major Asian markets.
Traders are also concerned about surging Natural gas prices derailing global growth. All these events are occurring ahead of the FOMC meeting and its risk for a hawkish outcome.
Technical view: The intraday USDCAD technicals are bullish. The break above 1.2750 triggered stop loss buying in holiday thinned Asia markets and continued during the European session. The rally stalled just below the 1.2865 area, which is the 61.8% Fibonacci retracement level of the October 2020-September 2021 range. A break above 1.2870 suggests further gains to 1.3060. Only a break below 1.2630 would negate the top side pressure.
For today, support is at 1.2780 and 1.2740. Resistance is 1.2890 and 1.2940. Today’s range 1.2810-1.2910
Chart USDCAD weekly
Source: Saxo Bank
G-10 FX recap and outlook
Blame China for spooking global investors. The Chinese property developer Evergrande Group is suffering significant financial difficulties and has two bond payments due Thursday. A bankruptcy could be the 2021 version of the Long-Term Capital Management collapse in 1998. Evergrande has halted construction on properties with enough floor space to cover three-quarters of Manhattan. A government bail-out is unlikely if the editorial in the state-owned Global Times is correct. The editorial said that Evergrande is not too big to fail.
Hong Kong’s Hang Seng fell 3.30%, which set the stage for sharply weaker European equity indexes. The German Dax is down 2.89%, while DJIA and S&P 500 futures suggest a nasty open on Wall Street. Safe-haven buyers of gold overwhelmed sellers due to US dollar strength and gold gained 0.45%. WTI oil prices dropped 2.64%. while 10-year US Treasury yields slipped to 1.312%
Soaring natural gas prices are another issue. They have jumped over 50% in just six months and the risk of a cold winter suggests prices will rise further. The UK government is holding an emergency summit with gas industry leaders to see if they can limit the impact of higher prices on consumers and businesses.
The regularly scheduled US debt-ceiling crisis is upon us. Treasury Secretary Janet Yellen warned that the US might default on debt if the debt ceiling isn’t raised by the October deadline. A last-minute solution is almost a certainty, but nevertheless, until it happens, traders will be nervous.
EURUSD dropped from 1.1787 Friday to 1.1701 just before NY opened. The plunge was due to broad US dollar demand from elevated risk aversion. German PPI rose 1.5% m/m in August nearly doubling the 0.8% forecast, but it was largely ignored. Safe haven selling of EURJPY also weighed on the currency.
A break below 1.1670 targets 1.1600.
GBPUSD dropped from 1.3747 in Asia to 1.3649 in NY. Fears that soaring natural gas prices will derail the UK recovery, combined with broad US dollar demand are weighing on the currency. The uptrend line from July 2021 is intact above 1.3620.
USDJPY traded in a 109.44-110.03 range with safe-haven demand for yen overwhelming broad USD dollar demand. Lower US 10-year Treasury yields in early NY trading also weighed on the currency pair.
AUDUSD and NZDUSD dropped as risk sentiment soured. AUDUSD is also suffering from low iron ore prices.
There are no Canadian or US economic reports of note, leaving USDCAD direction determined by equity markets.
Chart of the Day- Natural Gas
FX open, high, low, previous close
Source: Saxo Bank
China Snapshot -Closed
Today’s Bank of China Fix, 6.4527, Previous 6.4527
Shanghai Shenzhen CSI 300 index closed
Chart: USDCNY 5 day
Source: Yahoo Finance