June 2, 2023

  • US Senate passes debt ceiling legislation.
  • Nonfarm payrolls soar by 339,000- Unemployment rises to 3.7%.
  • US dollar adding to yesterday’s losses- snubs NFP.

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3564-68, overnight range 1.3409-1.3448, close 1.3448.

USDCAD dropped 1.3%, peak to trough since yesterday, falling from 1.3583 to 1.3409 today. The plunge was on the back of broad US dollar weakness as traders embrace the prospect that the Fed’s rate hiking cycle is over after the ISM Manufacturing report showed economic activity contracted in May for the seventh consecutive month.

Traders are ignoring news that Canada’s “Fiscal Anchor”, a highly touted guide to managing Canada’s Finances, was really a Fiscal ICBM. The Feds are committed to giving Volkswagen $13 billion which irritated Stellantis so much they threatened to scrap an EV battery plant in Windsor. No problem, the magic money fountain spewed out another $19.0 billion to appease the disgruntled car manufacturer.

Canada’s budget deficit is expected to be $35.3 billion in 2023, so what is another $22.0 billion?

Oil prices also undermined USDCAD.  WTI rallied from $67.54 Thursday to $71.53 today due to hopes that the end of US rate hikes leads to a global economic rebound.

.USDCAD Technical Outlook

The intraday USDCAD technicals are bearish below 1.3480, looking for a break below 1.3390 to extend losses to 1.3350.  A move above 1.3480 suggests further 1.3400-1.3600 consolidation.

The longer term USDCAD technicals  are bearish below 1.3640 and looking for a move below 1.3250 (2023 low) to test the 1.3000 (61.8% Fibonacci retracement of April 0222, 1.2405-October 2022, 1.3965 range)

For today, USDCAD support is at 1.3390 and 1.3340.  Resistance is at 1.3480 and 1.3550.

Today’s range 1.3350-1.3450

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook  

It didn’t even come down to the wire. The Senate passed the bill that suspends the debt ceiling in a vote that wasn’t even close (63-36), and President Biden will trip over himself as he hurries to sign the bill into law.

The US dollar barely budged on the news, mainly because it had already retreated during the US session on Thursday. That’s because “skip” is the new “pause.”

Analysts believe that when the Fed says, “skip a hike,” they mean they are intentionally choosing not to raise rates on a specific date. Pausing a hike implies a temporary halt to rate increases, which implies hikes will resume at a later meetings.

Either way, the Fed is playing “silly buggers” by passing off gobbly-gook, baffle-gab as informed insight.

Today’s May nonfarm payrolls data did not do anything to derail the US dollar sell-off,  at least initially. Analysts are cherry-picking the NFP data and can find pieces to fit any narrative. Employment is higher but so is unemployment, while average hourly earnings are lower.

The data means the Fed will either hike, then skip, or skip, then hike.

European equity indexes are off their peak levels but remain firm.  The German Dax is up 1.0% as of 85:40 PDT and  S&P 500 futures are 0.52% higher.

EURUSD is at 1.0762, near the top of its overnight 1.0759-1.0778 range.  Hopes that the Fed leaves interest rates unchanged, even as the ECB hikes and the death of the debt ceiling crisis are supporting prices. EURUSD are looking for further gains to  further gains to 1.0820. 

GBPUSD dropped through the bottom of its 1.2522-1.2543 overnight range following the NFP data and touched 1.2496,  The drop may just be profit taking as a Fed rate hike pause and a Bank of England rate hike supports the currency pair. In addition sales of EURGBP underpinned sterling due to UK inflation rising while the Eurozone CPI fell.

USDDJPY traded in a 138.61-139.10 range overnight then spiked to 139.46 in the wake of the NFP data, before easing back to 139.20.  the gain was supported by the rise in the US 10-year Treasury yield from 3.603% to 3.662% today.

AUDUSD traded in a 0.6572-0.6637 range due to broad US dollar weakness, higher commodity prices and the prospect that the RBA increases interest rates next week.  

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

Source: Bloomberg

China Snapshot

Bank of China Fix: 7.0939, previous 7.0965

Shanghai Shenzhen CSI 300 rose 1.44% to 3861.83.

Chart: USDCNY 6 month

Source: Bloomberg