Photo: Charles M Schultz

February 13, 2023

  • Markets cautious ahead of US CPI due Tuesday.
  • Geopolitical tensions balloon-literally.
  • US dollar gains but CAD outperforms since Friday open.

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3360-64, overnight range 1.3327-1.3378, close 1.3347

The Canadian Labour Force Survey report on Friday was blockbuster. The surprising 149,900 jobs gains sparked a huge drop in USDCAD, and it has yet to recover.

The jobs data is making the Bank of Canada decision to announce a pause in rate hikes look a tad premature. The minutes of the January 25 monetary policy meeting revealed that labour market tightness was a risk to the outlook and Friday’s employment report suggests that concern is valid.

Oil prices are consolidating gains in the $80.00/barrel area due to Russia’s plans to cut production and Opec and IEA forecasts of rising demand.

Higher Canadian rates and higher oil prices will weigh on USDCAD.

USDCAD Technical Outlook

The intraday USDCAD technicals flipped to bearish with the breach of support at 1.3420 and 1.3360.  the hourly downtrend is intact while prices are below 1.3370, looking for a break below support in the 1.3300-20 area to 1.3290, then 1.3260.

Longer term, the June uptrend line comes into play at 1.3280 which guards the 200-day moving average at 1.3234.

For today, USDCAD support is at 1.3320 and 1.3280.  Resistance is at 1.3370 and 1.3420.

Today’s range 1.3320-1.3410

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

Balloons were bursting all across North America this weekend.  Philadelphia Eagles fans saw their Super Bowl XVII hopes burst in the fourth quarter.  A fourth Chinese spy balloon was shot down by an American F-16 fighter plane on the Canada US border yesterday. The Canadian air force watched the balloon drift across Canada and wanted to shoot it down. Snoopy was busy.

China claimed the US floated balloons across its airspace ten times in the past year. A spokesman said, “The first thing the US side should do is start with a clean slate, undergo some self-reflection, instead of smearing and accusing China.”

Traders hoping that the Fed’s outlook for inflation and interest rates are seeing that balloon, if not burst, deflate. They have bought into the FOMC view of a 5.0-5.25% Fed funds rate and gave back almost all of the S&P 500 gains in February. Traders are nervous ahead of Tuesday’s CPI print.

Asia equity indexes closed lower led by a 0.88% drop in Japan’s Nikkei 225 index while European bourses squeezed out gains.  The French CAC 40 index rose 0.61% and the UK FTSE 100 index rose 0.32%. S&P 500 futures are flat to positive.  Gold and oil prices are little changed from Friday’s close while the US 10-year Treasury yield is at 3.737T.

EURUSD drifted in a 1.0657-96 band. Dovish comments by ECB policymakers offset improved economic forecasts from the European commission.  Bank of Italy Ignazio Visco warned of recession risks from an “unnecessary and excessive rise in real interest rates.”  The European Commission is now forecasting that European area GDP will rise 0.9% in 2023, avoiding a recession.  

GBPUSD rose from 1.2032 to 1.2113 in early NY trading after S&P 500 futures recouped earlier losses and turned positive.   UK employment and US inflation reports are due Tuesday.

USDJPY is a the top of its overnight 131.29 -132.76 range underpinned by higher US Treasury yields and concerns about the direction of BoJ monetary policy under a new governor.

AUDUSD is at the top of its 0.6291-0.6341 overnight range due to a slightly weaker US dollar vis the majors.  However, traders are uncommitted ahead of Australian employment data and upcoming speeches by RBA Governor Philip Lowe.

The US and Canadian economic calendars are empty.

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

Source: Saxo Bank

China Snapshot

Bank of China Fix: 6.8151, Previous: 6.7884

Shanghai Shenzhen CSI 300 rose 0.91% to 4143.57.

Chart: USDCNY 1 month

Source: Bloomberg