Photo: Bing AI
September 27, 2023
- Month end and quarter end rebalancing flows adding to chaos.
- US Durable Goods Orders, ex-transportation rise higher than expected.
- US dollar opens higher compared to yesterday but mixed from close.
FX at a Glance
USDCAD Snapshot: open: 1.3535-39, overnight range: 1.3501-1.3539, close 1.3518
USDCAD rallied on the back of broad US dollar demand stemming from higher US Treasury yields and month and quarter end portfolio rebalancing flows. Rebounding oil prices helped the Canadian dollar out-perform against the commodity bloc currencies (AUD, NZD) but it is the outlook for Fed monetary policy that is driving the FX market.
WTI rose from $88.20 yesterday to $91.94 in NY this morning despite the American Petroleum Institute reporting that crude inventories rose last week. Traders are bullish on crude thanks to production cuts and low investment in new supply pointing to reduced global supply just when demand is expected to increase. It helps that oil analysts are targeting $100.00/b crude again.
The Canadian economic calendar is empty leaving developments south of the border to dictate USDCAD direction.
The USDCAD technicals are bullish above 1.3470 and looking for a test of resistance at 1.3570. A topside break suggests further gains to 1.3650 and then 1.3800. A drop below 1.3470 targets 1.3380.
Longer term the uptrend line on a weekly chart from April 2022, is intact while prices are above 1.3210.
For today, USDCAD support is at 1.35054 and 1.3470. Resistance is at 1.3550 and 1.3570. Todays Range 1.3505-1.3570.
Chart: USDCAD 4hour
G-10 FX recap
Jokers are wild in the month and quarter-end financial market poker game, with portfolio rebalancing flows injecting another layer of chaos into the drama. The 5.19% drop in the S&P 500 index this month is contributing to the demand for US dollars as portfolio managers scramble to rebalance positions, which may also be a factor in the surge in the US 10-year Treasury yield to 4.556% yesterday. The lack of top-tier US economic data aggravated the month-end noise.
Yesterday’s US data did not help sentiment. Consumer confidence fell to 103.0 from 108.7, and New Home Sales fell 8.7%, which indicates the Fed’s monetary policy is taking a toll on the economy.
Today’s US Durable Goods Orders for August may suggest that the economy is not down for the count, after the ex-transportation component rose 0.4% m/m and non-defence capital orders rose 0.9% m/m.
Wall Street closed ugly, while Asian equity indexes finished on a mixed note. Japan’s Nikkei 225 rose a modest 0.18%, while Australia’s ASX 200 fell 0.11%. The main Chinese indexes closed higher ahead of the Golden Week holidays which start next week. European bourses are trading in negative territory, while S&P 500 futures have risen 0.31%, partly because the US 10-year Treasury yield dropped from yesterday’s peak to 4.507%.
A New York judge ruled that former President Donald Trump committed fraud by overvaluing his businesses to the tune of $2.2 billion. Gee, Trump exaggerates. Who knew?
The rise in US Treasury yield has taken a toll on gold prices. Gold (XAUUSD) dropped through support at 1,190.00 and is targeting support in the $1870.00-$1885.00 area.
EURUSD traded erratically in a narrow 1.0552-1.0575 range due to the outlook for higher US interest rates and another weak economic report from Germany. The Gfk Consumer Confidence survey for October is expected to decline to 26.5 from 25.6 in September. The intraday technicals are bearish below 1.0600, looking for a test of 1.0400.
GBPUSD dropped to 1.2136 from 1.2167 due to a mix of month-end GBPUSD selling pressures and fears that further soft economic reports combined with bearish technicals could drive the currency to 1.1600.
USDJPY traded firmly in a 148.87-149.29 range as traders dare the Bank of Japan to intervene. USDJPY bulls believe that if the BoJ sticks to its ultra-easy monetary policy and US rates keep rising, any BoJ intervention will merely be a USDJPY buying opportunity.
AUDUSD traded in a 0.6366-0.6410 range weighed down by broad US dollar strength, weaker commodity prices, and concerns about slowing growth in China. Australian CPI was 5.2% y/y in August, as expected.
Chart of the Day: Gold (XAUUSD)
FX high, low, open
Bank of China Fix: today unchanged at 7.1717, expected 7.3103, previous 7.1727.
Shanghai Shenzhen CSI 300 rose 0.21% to 3700.50
PBoC policy committee said it would increase policy coordination and that they would enhance efforts of macro policy adjustment. They also said they would act to prevent excessive adjustments in the exchange rate.
China put Evergrande Chairman Hui Ka Yan under police surveillance which means house arrest.
Chinese banks were reportedly selling USDCNY.
Chart: USDCNY 1 month