April 4, 2023

  • Equities march higher and ignore US recession risks.
  • RBA leaves rates unchanged but RBNZ expected to hike by 25 bps tomorrow.
  • US dollar retreating on US rate cut hopes.

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3416-20, overnight range 1.3413-1.3443, close 1.3436

USDCAD is trading defensively on the back of positive risk sentiment. Traders are buying the Saudi story that the Opec production cut was not to support it’s ally Russia, but to punish speculators, and therefore it will not be inflationary. Doh!

Fed hawk and Federal Reserve Bank of St Louis President James Bullard doesn’t agree.  He said that Opec’s actions will make the Fed’s job more difficult.

WTI oil is trading near the top of its $80.36/b-$81.28/b overnight range, supported by a host of analysts revising forecasts of $100.00/b.

USDCAD Technical Outlook

 The intraday technicals are bearish. USDCAD is in a downtrend channel on the 4-hour chart, bordered by 1.3380 and 1.3500. Prices are flirting with the June uptrend line which comes into play in the 1.3400-10 area, which if broken decisively targets 1.3230.

However, the daily chart warns USDCAD is nearing extreme oversold levels and vulnerable to a correction. Which could lead to a bounce to 1.3630.

For today, USDCAD support is at 1.3400 and 1.3360.  Resistance is at 1.3500 and 1.3550.

Today’s range 1.3400-1.3480

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

The Donald Trump circus opens in Manhattan today at 2:15 pm. Enough said.

Speaking of circuses, the clowns in the Chinese administration have their knickers in a knot because US House Speaker Kevin McCarthy is meeting with Taiwan President Tsai Ing-wen Thursday. The Chinese Consulate in Los Angeles said the meeting is not conducive to regional peace.  The Global Times (official propaganda arm of Xi Jinping) said Taiwan will “loose more than they can gain from the meeting.”

Another clown, the Russian Defence Minister boasted that Belarusian jets can carry nuclear weapons.

Traders just don’t care. They believe that recent US data is recessionary and that the Fed will soon be chopping rates.  It is risk-on,” and the US dollar is in retreat, while equities march higher.

The major Asian equity indexes closed with small gains and the German Dax, which has risen 0.84%, is leading European bourses higher.  S&P 500 futures have gained 0.40%, even as WTI oil rose 0.80%.

EURUSD traded rather narrowly in a 1.0884-1.0937 range, with prices supported by expectations that the ECB hikes rates another 50 bps in May. Sentiment is mixed. Some analysts expect a rally to 1.1000 and beyond while others think the EURUSD is toppish and vulnerable to a correction to 1.0650.

GBPUSD traded in a 1.2397-1.2520 range overnight, moving sideways in Asia then climbing steadily in Europe. Bank of England policymaker Silvana Tenreyro, a noted dove,  helped give the currency pair a lift when she said a loser monetary policy stance is need to meet the inflation target. Huh? Has she been talking to turkey’s Recep Erdogan?

USDJPY rallied in a 132.18-133.06 range despite a soft US 10-year Treasury yield, although has climbed from the overnight low of 3.41% to 3.453%. The start of the new Japanese fiscal year may be part of the reason for yen weakness.

AUDUSD traded with a modest bid ahead of the RBA monetary policy decision, then dropped from 0.6792 to 0.6737 after the RBA left the cash rate unchanged.  It was the first unchanged result in eleven meetings, and widely anticipated. The statement said the pause was to give board members time to assess the impact of previous hikes and included the usual trite that the “board remains resolute in its determination to return inflation to target.” 

NZDUSD is in the middle of its 0.6285-0.6308 range awaiting tomorrow’s monetary policy meeting. The RBNZ is expected to hike rates by 25 bps to 5.0%.

US Factory Orders and JOLTS job openings are due.

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

Source: Saxo Bank

China Snapshot

Bank of China Fix:  6.8699, Previous: 6.8805

Shanghai Shenzhen CSI 300 rose 0.98% to 4090.57.

Chinese markets are closed Wednesday for Tomb Sweeping Day

Chart: USDCNH 1 month

Source: Bloomberg