April 1, 2022

  • Putin demands payment in rubles for gas shipments
  • Nonfarm payrolls rise 431,000, unemployment drops to 3.6%
  • US dollar opens mixed, commodity bloc outperforms

FX change at a Glance 24 hour change

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2484-88, overnight range-1.2485-1.2525, close 1.2507

USDCAD traded sideways in Asia, spiked to 1.2525 in early European trading, then retreated just as quickly, reaching the session low just ahead of the NY open. The price action mirrored oil price moves and is just noise in the context of the down-trending USDCAD.

The Omicron outbreak had the expected impact on the services sector, but even so, the Canadian economy grew in January. StatsCanada reported that real GDP rose 0.2% m/m for the eighth consecutive month. February growth is expected at 0.8% which supports additional USDCAD weakness.

USDCAD continues to have an “on-again, off-again” romance with crude. WTI has trended lower since its Russian invasion of Ukraine peak of $129.70/barrel. Prices are now flirting with the uptrend line from the beginning of December which has survived many attempts to break below. That line comes into play in the $97.50-$98.00 area.

The US release of 1.0 million barrels per day of oil from the Strategic Petroleum Reserves weighed on prices yesterday. That is barely more than 1.0% of the world’s daily oil consumption, which suggests the price drop may be overdone.

If a despot changes the terms of an energy supply contract to demand payment in rubles rather than US dollars or euro’s, and no one listens, did it really happen? That is what Russian President Putin is asking. Putin said that unfriendly countries need to pay for gas in rubles, but Germany and Italy don’t believe the decree applies to them.

USDCAD will continue to be bounced by shifting global risk sentiment but a robust domestic economy, the outlook for higher interest rates, and bearish technicals should limit gains while focusing on support in the 1.2000 area.

USDCAD technical outlook

The USDCAD technicals are bearish after prices fell below the uptrend line from June 2021. Fibonacci retracement analysis of the June 2021-December 2021 range suggests that the break of the 39.2% retracement level (1.2590) will extend losses to 1.2360 and perhaps even 1.2220. A move above 1.2660 would negate the downside view.

For today, USDCAD support is at 1.2470 and 1.2430.  Resistance is at 1.2530 and 1.2570.  Today’s Range 1.2450-1.2550.

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

The US added 431,000 jobs in March, the unemployment rate fell to 3.6% from 3.8%, while average hourly earnings rose 0.4% m/m. The latter keeps the focus on wage-inflation and reinforces calls for 0.50% rate hikes at the next two meetings.

US equity futures dropped on the results while the US dollar and the US 10-year Treasury yield rose.

The major Asian equity markets started the new month on a down note. Japan’s Nikkei 225 index closed with a 0.56% loss, while Australia’s ASX 200 was close to unchanged. European bourses are in positive territory despite soft Manufacturing PMI data. DJIA and S&P 500 futures are posting gains. Gold fell 1.0%, and the US 10-year Treasury yield climbed to 2.408%.

Traders are cautiously dismissive of headlines about the Russia/Ukraine war but remain on high alert for signs that the conflict is escalating.

EURUSD is trading at the bottom of its 1.1038-1.1075 range overnight. The Russia/Ukraine hostilities and the risk of sharply slowing Euro area growth from higher energy prices are weighing on prices as are fears of more aggressive Fed rate hikes.

Euro zone HICP inflation (prelim) rose 7.5% in March, compared to February’s 5.9% increase. Higher energy prices accounted for 44.7% of the increase.

The intraday EURUSD technicals target 1.0950 on a break below 1.1030.

GBPUSD traded in a 1.3110-1.3150 range and is at the bottom of the band following the NFP data, although losses are tempered by EURGBP selling. A move below 1.3070 suggests further losses to 1.3000.

USDJPY rallied from 121.70 to 122.76 range, underpinned by the rise in the 10-year Treasury yield to 2.42%. Prices are also supported by a weaker than expected Tankan report.

AUDUSD and NZDUSD held on to gains following the NFP data, supported by firm commodity prices.

 Today’s ISM Manufacturing PMI is forecast at 59 (March 58.6)

Chart of the Day-WTI oil 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 6.3509, previous 6.3482

Shanghai Shenzhen CSI 300 rose 1.27% to 4,276.16

Caixin March Manufacturing PMI 48.1 (forecast 49.7, February 50.4)

Chart: China 1 month