Photo:Pixabay

May 10, 2023

• US April CPI ticks down to 4.9% from 5.0%
• Fed Williams does not expect a rate cut in 2023.
• US dollar opens with little change after quiet overnight session.

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3390-94, overnight range 1.3337-1.3396, close 1.3384

USDCAD hovered around the 1.3380 area just before US CPI data was released, then dropped to 1.3349 immediately afterwards. US headline CPI ticked down to 4.9% from 5.0% while the month over month result was unchanged at 0.4%

Canada and China are embroiled in a tit-for-tat diplomatic brouhaha. The Trudeau government expelled a Chinese diplomat for his efforts to intimidate a Conservative MP and China kicked out a Canadian diplomat in Shanghai.  Next up-Canada/China trade war?

WTI oil prices fell from the overnight peak of $73.61/b to $72.48/b due to US dollar strength the popped to $73,70, post CPI.  Traders ignored the API report that US crude inventories rose 3.6 million barrels last week. The US government is planning to replenish its Strategic Petroleum Reserves, which should help to limit the downside.

Canada March building permits soared 11.3% well above the -2.9% decline previously.

USDCAD Technical Outlook

The intraday USDCAD technicals are bearish while prices are below 1.3460 (hourly chart), looking for a break below 1.3290 to extend losses to the 1.3200-20 area which has contained losses since September 2022. A break above 1.3460 targets 1.3530, then the March 2023 downtrend line at 1.3640.

For today, USDCAD support is at 1.3320 and 1.3290.  Resistance is at 1.3420 and 1.3460

Today’s range 1.3290-1.3390

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

Traders shifted activity into “Park” overnight. Most expect today’s US April inflation data will confirm both an end to Fed rate hikes and the pricing for about 100 bps of rate cuts by year end.

New York Fed President (and FOMC voter) John Williams has a different view than the market. Yesterday he told the New York Economics Club: “In my forecast I see a need to keep a restrictive stance of policy in place for quite some time to make sure we really bring inflation down from 4 percent all the way to 2 percent. I do not see in my baseline forecast any reason to cut interest rates this year”.

Headline April CPI rose 4.9% y/y (forecast 5.0% y/y), unchanged from March while Core-CPI ticked down to 5.5% from 5.6% y/y in March, as expected. 

The results are inconclusive as they support arguments for rate hikes or rate cuts.

It is a slow news day which means the US debt ceiling talks get far more attention then they warrant. So far, no progress. Even so, it is a relatively safe bet that an agreement will be reached before the US defaults on debt. It has never happened.

EURUSD traded defensively, falling from 1.0982 to 1.0947 due to position adjustments ahead of the US data then bounced to 1.0996 in the aftermath. Traders are short US dollars/long EUR which is a drag on gains. German CPI data was ignored (actual 7.2% y/y)

GBPUSD traded in a 1.2612-1.2643 range then extended the gains to 1.3664 post-CPI.  Prices are supported by hopes for a hawkish outcome to Thursday’s Bank of England monetary policy meeting. GBPUSD is vulnerable to the BoE pushing back against expectations for further rate hikes. A break below 1.2570 will extend losses to 1.2440.

USDJPY chopped around in a 135.07-135.46 range. Then dropped to 134.653 following the dip in US inflation and US 10-year Treasury yield drop to 3.456% from 3.507%  at today’s NY open.  Prices are supported by modestly higher US Treasury yields and by the BoJ reiterating a dovish monetary policy outlook earlier this week.

AUDUSD found its mojo and popped to 0.6811, post-CPI, after trading in a 0.6751-0.6773 range overnight.  The intraday technicals are bullish above 0.6720.

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

China Snapshot

Bank of China Fix: 6.9299, previous 6.9255.

Shanghai Shenzhen CSI 300 fell 0.77% to 3996.87.

Chart: USDCNY 1 month

Source: Bloomberg