May 18, 2023

  • Traders paring back Fed rate cuts.
  • Biden cuts Asia trip short-lifts hopes for debt ceiling deal.
  • US opens mixed from yesterday but gains across the board from the close.

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3469-73, overnight range 1.3454-1.3480, close 1.3455

USDCAD continues its roller-coaster ride inside the well-defined 1.3300-1.3650 range. USDCAD direction, (like most of the G-10 currency pairs,) is hostage to US risk sentiment and that sentiment shifts with every debt-ceiling headline and economic data print.

That means today’s US weekly jobless claims, Philadelphia Fed Manufacturing Survey, and Housing data will be scrutinized for clues as to how it will impact Fed rate hike expectations. In other words, same old, same old.

WTI oil prices rallied yesterday despite the EIA reporting a 5.04 million barrel increase in crude inventories.  The Alberta wildfires have cut 240,00 barrel/day in shipments which is underpinning prices.

The Bank of Canada Financial System review is released today followed by a press conference with Governor Tiff Macklem.

USDCAD Technical Outlook

The USDCAD technicals are indecisive with the 1.3300-1.350 containing price action. The intraday technicals are mildly bullish above 1.3430, looking for a break above 1.3540 to extend gains to 1.3600, while a move below 1.3430 targets 1.3390.

For today, USDCAD support is at 1.3430 and 1.3390.  Resistance is at 1.3520 and 1.3550

Today’s range 1.3430-1.3530

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook  

A spate of better than expected US economic data, including firm US retail sales, has eased US recession fears enough to back away from aggressive Fed interest rate cut expectations. The trend continued today.  Weekly jobless claims fell 22,000 to 242,000 which suggests the Fed’s economic outlook was more accurate than market predictions.

The CME FedWatch tool’s odds for a rate cut in September have dropped to 42%.

Ukraine says it shot down 29 of 30 Russian missiles fired at Kyiv overnight. This mocks Russian claims about its hypersonic missile power.

President Biden is flying to Asia for the G-7 meeting in Hiroshima, but not staying long. He is cutting his trip short, fueling speculation that a debt deal was imminent.

Optimism surrounding the US debt ceiling negotiations fueled a stock market rally and Wall Street closed with solid gains.  The trend continued in Asia with Japan’s Nikkei 225 index closing up 1.60% and Australia’s ASX 200 rising 0.52%. European traders joined the party, but pared gains after the US data.  S&P 500 futures are up a modest 0.19% while gold and oil prices are a touch lower.

EURUSD trades sideways in a 1.0808-1.0847 range then dropped below psychological support at 1.0800 to 1.0791, following the US data. The risk for higher Fed rates for longer overshadowed the improved outlook for a debt ceiling deal. The Eurozone economic calendar was devoid of top-tier data and many European markets were closed for public holidays including France and Germany.  The intraday technicals suggest a decisive move below 1.0780 will extend losses to 1.0710.

GBPUSD traded in a 1.2420-1.2491 range with prices weighed down by broad US dollar strength. Bank of England Governor Andrew Baily and other senior officials defend their Quantitative Tightening (QT) program management to parliament. The UK and Japan have agreed to establish a strategic partnership dubbed “The Hiroshima Accord.”

USDJPY climbed steadily, rising from 137.30 to 138.30, post jobless claims due to the prospect of higher US rates for longer. Japanese trade data showed imports dropped 2.3% y/y due to a drop in raw materials costs while exports rose 2.6%.

AUDUSD chopped about in a 0.6631-0.6666. Gains were capped by weaker than expected Australian employment data. Australia lost 4,300 jobs in April compared to the forecast for a gain of 25,000. The unemployment rate rose to 3.7% from 3.5%. The results may ease the pressure on the RBA to raise rates.

NZDUSD traded in a 0.6237-0.6268 range with the peak seen in Asia and the low occurring in early NY trading. The New Zealand Labour government tabled its 2020-FREE budget.  Free public transportation for children, free prescription medicines, free childcare.

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

Source: Bloomberg

China Snapshot

Bank of China Fix: 6.9967 previous 6.9748

Shanghai Shenzhen CSI 300 fell 0.10% to 3956.07.

Chart: USDCNY 1 month

Source: Bloomberg