Photo: CNBC YouTube

August 22, 2022

  • China trims 1-year and 5-year Loan Rates
  • Markets are antsy ahead of Powell speech Friday
  • US dollar climbs slightly, AUD outperforms

FX at a glance:  

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2981-85, overnight range 1.2973-1.3017, close 1.2993

USDCAD is a captive of the Fed’s monetary policy outlook, as are the other G-10 major currency pairs. Currency price action fluctuates depending on the current view of Fed rate hikes and that view has shifted toward rates rising higher and for longer than previously expected.

The rate hike view is weighing on global commodity prices.  Gold (XAUUSD) fell 3.7% since August 12 while WTI is down 4.2%.

US Q2 GDP on Thursday, PCE data Friday and Fed Chair Powell’s Jackson Hole speech will dictate USDCAD direction.

There are no top tier Canadian economic reports due this week.

USDCAD Technical outlook

The USDCAD technicals are bullish above 1.2950, looking for a break above 1.3035 to extend gains to 1.3140, and putting the 2022 peak of 1.3224 in play.  A move below 1.2950 targets 1.2880.  the uptrend line from June 2021 is intact above 1.2590.

For today, USDCAD support is at 1.2950 and 1.2920.  Resistance is at 1.3020, and 1.3050. Today’s range: 1.2950-1.3020

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

FX markets will likely trade erratically this week, rising and falling on a whim. That’s not much of a prediction, as they have been doing that all month.

The US dollar caught a bid last week and extended those gains modestly overnight. The greenback is in demand due to the prospects of higher US interest rates and US economic outperformance, particularly against Europe and the UK. 

Traders are re-thinking their conclusion that the Fed’s rate hiking cycle will end in December. A spate of comments from Fed policymakers has encouraged the change.

Analysts and economists speculate that Fed chair Powell’s Jackson Hole speech Friday will be hawkish, and markets traded defensively overnight.

Asian stock indexes closed in negative territory, led by a 0.92% drop in Australia’s ASX index. China’s Shanghai Shenzhen CSI 300 index was the exception, rising 0.79% due to the PboC rate cuts. 

The mood is sour in Europe, exacerbated by Russia shutting down the Nordstrom 1 pipeline for “maintenance.”

The German Dax is down 1.47%, followed by the French CAC index which lost 1.26%.

S&P 500 futures are down 1.09%, and DJIA futures slipped 0.86% due to renewed rate hike fears which also weighed on gold and oil prices.

The US 10-year Treasury yield dropped from 3.002% to 2.946%, then rose to 2.981% in early NY trading.

The Chicago Fed National Activity Index for July is 0.27 compared to -0.25 in June.  The data was ignored data was ignored by FX traders.

Elon Musk discovered another way to pay the $44 billion Twitter acquisition cost. He plans to boost the price of the Tesla Full Self-Driving software update by 25,000. If 1,760,000 Tesla owners opt for the package, the Twitter cost is covered.

EURUSD with a negative bias in 0.9990-1.0046 range with prices weighed down by concerns around the Nordstrom pipeline after Russia turned off the taps for “routine maintenance.”  

GBPUSD churned in a 1.1784-1.1835 band due to bearish technicals and widespread US dollar demand. Citibank economists predicted UK inflation would hit 18.6% by January 2023 due to surging energy costs which also weighed on prices.

USDJPY rose to 137.43 from 136.71 with price action mirroring swings in the US 10-year US Treasury yield.

AUDUSD traded in a 06870- 0.6909 range supported by the China rate cuts

NZDUSD rallied from 0.6170 to 0.6206 range with prices getting an added boost after RBNZ Deputy Governor Christian Hawkesby said the central bank its benchmark rate “comfortably above neutral,” to around 4.0-4.5%.

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix: 6.8198, previous 6.8065

Shanghai Shenzhen CSI 300 rose 0.73% to 4,181.40

1-year loan prime rate (LPR) cut 5 basis points to 3.65%  

5-year LPR cut 15 basis points to 4.30%.

Chart: USDCNY  1 month

Source: Bloomberg