August 4, 2023
- Canada and US jobs rise less than expected.
- Rising US 10-year Treasury yields underpin the US dollar.
- USD dollar mixed from yesterday, opens higher compared to close .
FX at a Glance
USDCAD Snapshot: open: 1.3364-68, overnight range 1.3336-1.3394, close 1.3354
Canada lost 6,400 jobs in July, which may put a smile on Bank of Canada Governor Tiff Macklems’s face. He hiked rates in July partly because of a tight job market and if today’s data is the start of a trend, it could be the last rate hike, assuming inflation numbers follow suit.
USDCAD rallied, dipped and is essentially unchanged following the US and Canadian employment data. Traders are focused on US market developments, particularly firming US Treasury yields.
In addition, there are some chunky options maturing at 10:00 am, including a $2.0 billion at 1.3300, $600 million at 1.3325 on the downside, and $1.5 billion in the 1.3390-1.3400 area.
The Ivey Purchasing Managers Index is on tap. (forecast 52.7 vs 50.2 in June).
Monday is a holiday in Canada.
The USDCAD technicals are bullish while trading above 1.3290 with a break above 1.3400 targeting 1.3460, then 1.3550. A break below 1.3290 suggests further losses to 1.3260, which if broken will extend losses to 1.3150.
For today, USDCAD support is at 1.3330 and 1.3260 Resistance is at 1.3400 and 1.3460. Today’s range 1.3300-1.3400
Chart: USDCAD daily
Source: Saxo Bank
G-10 FX recap
Today’s US nonfarm payrolls report and next Thursday’s CPI data will set the tone for markets until the FOMC meeting on September 20. NFP rose less than expected, rising 187,000 (forecast 200,000). However, average hourly earnings remained unchanged at 4.4% y/y, while the unemployment rate ticked down to 3.5% from 3.6%.
The US labor market may be easing, but if hourly earnings remain firm and inflation levels remain sticky, the Fed may be less motivated to leave rates unchanged.
Risk sentiment improved marginally in Asia after China removed tariffs from imports of Australian barley. Xi Jinping may be realizing that his bully-boy tactics against countries that displease him negatively impact his economy. Beijing is also pledging to “invigorate capital markets and boost investor confidence” after the strategy of “disappearing” successful business people failed to attract new investment.
Traders continue to digest the implications of the Fitch downgrade of US debt, which Bloomberg notes, rates Microsoft and Johnson and Johnson debt higher than the country where they are based.
The 10-year US Treasury yield soared this week, rising from 3.94% on July 31 to 4.20% post-NFP, before dropping to 4.16%.
EURUSD traded in a 1.0935-1.09981 range, with the peak occurring after the US data and coinciding with the post-NFP retreat in the 10-year Treasury yield. Eurozone data was not a factor. Retail sales fell 1.4% y/y in June (forecast -1.7%, previous -2.4%), while German factory orders rose 7.0% m/m (forecast -2.0%).
GBPUSD inched higher and is at the top of its 1.2695-1.2755 range. Prices are supported by the modestly hawkish Bank of England outlook after it raised by 25 bps. The BoE could raise rates further as traders expect the terminal rate to be 5.75%.
USDJPY bounced in a 142.15-142.93 band. Prices are supported by the firm Treasury yields, but gains are capped by the Bank of Japan’s tweaking of the yield curve control cap.
AUDUSD is trading bounced to the top of its 0.6548-0.6588 range after the 10-year Treasury yield dipped following the US jobs data. The currency was on the defensive because the RBA statement suggested that the level of interest rates is restricting economic activity, which suggests further rate hikes are unlikely. Australia markets are closed Monday.
FX high, low, previous close
Bank of China Fix: 7.1418 , forecast 7.1808, previous 7.1495.
Shanghai Shenzhen CSI 300 rose 0.30% to 4020.58.
PboC says it will need to flexibly use monetary policy tools including RRR cuts to ensure ample liquidity which some analysts suggest, means a RRR cut this month.
Chinese authorities pledged to “invigorate capital markets and boost investor confidence.” Xi Jinping and his cronies may be realizing that “disappearing” successful business people tends to scare investors.
Chart: USDCNY 1 month