January 27, 2023

  • Fed’s favourite inflation measure, PCE Price index ticks higher
  • USDCAD flirting with major support.
  • US dollar poised to end week with losses except against EUR and CHF

FX at a glance-weekly change

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3316-20, overnight range 1.3310-1.3345, close 1.3322

USDCAD is ending the week on a weak note despite the Bank of Canada saying that Wednesday’s 25 bp rate hike was the last for this tightening cycle. Meanwhile the Fed is expected to slow its pace of rate hikes but suggest there are more increases in the pipeline when they meet next week.

USDCAD forwards are trading with a 0.0050-point discount for November delivery which suggests those traders expect the BoC to cut rates before year end.

Usually widening interest rate differentials in favour of the US imply a higher USDCAD rate. Perhaps it still does, and this bout of USDCAD weakness is just an echo from higher commodity prices due to China’s reopening.

In addition, USDCAD direction is largely driven by risk sentiment, and it closely tracks S&P 500 Index moves. The index is in a downtrend from last January while below 4110, with a break below 3800 targeting 3500.  If that happens, USDCAD will be flirting with 1.3700.

Dire Straits must have had the Canadian Revenue Agency (CRA) in mind when they wrote “Money for Nothing.”  Canada’s auditor General says that the CRA made $4.6 billion in payments to ineligible recipient’s and that another $27.4 billion may also be ineligible. CRA Commissioner Bob Hamilton told MP’s that recovering the overpayments, “In my view, based on what we’ve seen so far, it wouldn’t be worth the effort.”  At least he didn’t fly chauffer out from Vancouver to Ottawa to makes his case.

USDCAD Technical Outlook

The intraday USDCAD technicals are bearish while trading below 1.3380, looking for a break below 1.3310 to extend losses to 1.3250. A break above 1.3380 will extend gains to 1.3430.  A break above 1.3480 would negate the downside pressure and target 1.3680.

The downtrend channel from January 3 is intact below 1.3440 suggesting further losses to 1.3210.

For today, USDCAD support is at 1.3280 and 1.3250.  Resistance is at 1.3380 and 1.3430.

Today’s range 1.3280-1.3360

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

The US dollar is trading defensively following yesterday’ data which highlighted the resilience of the US economy.  US Q4 GDP was higher than expected at 2.9% y/y (forecast 2.6%) while weekly jobless claim fell.

Core Personal Consumption Expenditures Price Index rose 0.3%, a tick higher than the 0.2% expected and the November result.

Asian equity markets closed with minor gains. The Hang Seng rose 0.54%, the ASX 200 gained 0.34% and the Nikkei 225 index was close to unchanged.

European bourses opened in positive territory and are modestly higher while S&P 500 futures are unchanged. WTI oil prices are 1.65% higher from yesterday’s close.

EURUSD bounced in a 1.0867-1.0900 range.  Prices are steady ahead of next week’s ECB meeting where policymakers are expected to deliver a 50 bp rate hike and a hawkish outlook.

GBPUSD traded in a 1.2361-1.2418 range.  There was no data of note and Chancellor of the Exchequer Jeremy Hunt’s comments did not impact FX.  He squashed hopes of tax cuts saying the best tax cut was lower inflation.  Here! Here!

USDJPY is trading just above its session low in a 129.50-130.26 range.  Tokyo inflation rose 4.4% in January, well above Decembers 3.9% y/y level. Traders ignored earlier comments from IMF officials urging the BoJ to be flexible and that inflation risks were tilted to the upside.

AUDUSD traded in a 0.7096-0.7128 range and is ending the weak as the best performing G-10 currency, rising 1.41% since Mondays open.

US Michigan Consumer Sentiment Index is also ahead.

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

Source: Saxo Bank

China Snapshot

Closed Lunar New Year Bank of China Fix: Jan. 20,2023, 6.7702, previous 6.7674.

Shanghai Shenzhen CSI 300 closed 4181.53. 20Jan23

Treasury Secretary Janet Yellen says US and China are making progress on resolving issues.

Chart: USDCNH (off-shore) 1 year and US Dollar Index

Source: Bloomberg