Photo: Pixabay

August 27, 2021

Fed Chair Powell speech at 10:00 am

Negative risk sentiment consolidates in wake of Kabul bombing

Canadian dollar starts NY session as worst-performing G-10 currency

FX at a Glance:

Source: IFXA/RP

USDCAD Snapshot   Open 1.2666-70, Overnight Range 1.2661-1.2707, Previous close 1.2687

USDCAD had a good day yesterday, rising from 1.2588 to 1.2687 at the close. Prices were boosted by the wave of risk aversion sentiment that washed over markets due to the terrorist attack in Afghanistan.  ISIS-K blew up American’s and Taliban alike, sent stocks lower, gold higher and sparked safe-haven demand for US dollars.  USDCAD got an added lift from widening US/CAD yield spreads.

Canada’s Industrial Product Price Index fell 0.4% m/m (forecast 0.1%) and Raw Materials Price Index rose 2.2% m/m in July.

USDCAD direction (like the rest of the FX world) is at the mercy of the market interpretation of Fed Chair Powell’s Jackson Hole speech today.

Food for thought: USDCAD rallied from 1.2050 in September 2017 to 1.3060 by December 2018. It spent January 2019 to March 2020 in a 1.2930-1.3570 range.  Then COVID-19 hit, and USD climbed 10 big figures above the top of the range before falling 10 big figures below that range.  Arguably, without the pandemic USDCAD would still be in the1.2935-1.3570 band.

Technical view:  The intraday USDCAD technicals are bullish above 1.2650, which is guarding the June uptrend line at 1.2550.  A move below 1.2650 targets 1.2590, while a break above 1.2720, extends gains to 1.2760.  A break above 1.2690 targets 1.2800.  For today, USDCAD support is at 1.2650and 1.2610.  Resistance is 1.2710-1.2750 and 1.2680. Today’s range 1.2650-1.2750

Chart USDCAD weekly-five years

Source: Saxo Bank

G-10 FX recap and outlook

US Personal Income jumped to 1.1% m/m from 0.2% in July and spending rose 0.3%.   The FX reaction was muted ahead of Jackson Hole speeches.

Jerome Powell’s speech is the only game in town.  The debate as to whether or not he will announce plans to begin tapering has constrained FX activity all week.  Everything else, including yesterday, risk-off US dollar rally, is just noise.

In his post-FOMC meeting press conference on July 28, Mr. Powell said, “I think we are some way away from having had “substantial further progress” toward the maximum employment goal.

I would want to see some strong job numbers.”  The July employment report that followed his press conference was strong.  The question is, “is it enough?”  Probably not.

Mr. Powell also said that inflation, well running above their 2.0% goal, would stay that way for a few months and then retreat.

Mr. Powell is not likely to announce tapering plans but may imply that such an announcement could be possible at the September meeting, which is what US dollar bulls are hoping for.

Overnight, the G-10 majors were choppy.  The US dollar was bid in Asia, on the bump in negative risk sentiment, then gave back some of those gains during the European session.

Data-wise, Australian Retail Sales (actual -2.7% vs forecast -2.3%) were weaker than expected but had little to no lasting impact on AUDUSD.

Chart of the Day- US and Canada 10-year yields

Source:  Koyfin

FX open, high, low, previous close

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix, 6.4863 Previous day 6.4730                         

Shanghai Shenzhen CSI 300 rose 0.53% to 4827.04

Chinese press report that the PBoC will cut the RRR rate shortly

China plans to ban US tech IPO’s that have large amounts of consumer data

Chart: USDCNY 1 month

Source: Yahoo Finance