May 18, 2022

  • Fed Powell hinting at two 50 bp rate hikes; June and July
  • Canada’s April inflation hotter than forecast  
  • USD opens on mixed note-Commodity currency bloc dips

FX change at a glance:

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2823-27, overnight range 1.2797-1.2850, previous close 1.2810

USDCAD continues to consolidate Monday’s losses, trading with a bearish bias while prices are below 1.2860.

USDCAD dipped from 1.2840 to 1.2805 after April inflation came in a tad hotter than expected. CPI rose 6.8% y/y (forecast 6.7%, unchanged from March) while Core-CPI (excluding food and energy jumped to 5.7% y/y from 5.5% previously.  Statistics Canada attributed the rise to increases in food and shelter.

Source:  Statistics Canada

Bank of Canada Governor Tiff Macklem told us that fighting inflation is his top priority, so it stands to reason that today’s inflation report will lead to a series of 0.50% or higher rate hikes in the coming months.

Surging oil prices are helping to cap USDCAD gains. Oil prices were underpinned by Tuesday’s API data reporting a 2.45-million-barrel decline in US weekly crude inventories, alongside supply issues from  Russia sanctions, expectations of increased demand from China as Shanghai reopens, an Opec’s struggles to increase production.

The intraday WTI technicals are bullish above $111.00/b looking for a break above $116.50 to extend gains to 125.00.  Longer term, the WTI uptrend is bullish above $100.00/b.

USDCAD technical outlook  

The intraday USDCAD technicals are bearish below 1.2860 looking for a decisive breach of 1.2790 to target 1.2750, then 1.2710.  A break above the 1.2870-90 area would shift the focus to 1.3000.  Longer term, the uptrend from June 2021 is intact while prices are above 1.2450.

For today, USDCAD support is at 1.2790 and 1.2750.  Resistance is at 1.2850 and 1.2890.  Today’s Range 1.2760-1.2840.

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

It’s just another wobbly Wednesday. Traders are still digesting the implications of yesterday’s higher than expected April US Retail Sales data (0.9% vs forecast 0.7%) and Fed Chair Jerome Powell’s hawkish comments.

Mr Powell said that “restoring price stability is an unconditional need. It is something we have to do.” “Big deal” said Wall Street as they drove stocks sharply higher (S&P 500 gained 2.02%, DJIA rose 1.34%). Traders also ignored the steady grind higher in the 10-year Treasury yield which climbed from 2.862% Monday to 2.984% today. The piper is playing, and he will soon demand payment.

US Building Permits and Housing Starts data were below forecasts which turn S&P futures gains into losses.

EURUSD rallied from 1.0495 to 1.0563 overnight, continuing the trend from Monday. The gains are supported by improved risk sentiment undermining the greenback alongside hawkish comments from ECB policymakers. However, the ongoing Russia/Ukraine war and recession risks are a drag on gains. The EURUSD downtrend from March 30 is intact below 1.0600.

GBPUSD traded with a negative bias in a 1.2373-1.2500 range. Prices tumbled from the peak after UK inflation reached 9.0%, last seen in 1982.The Bank of England has a dilemma. They need to raise interest rates, but the UK economy is already dancing with recession territory. Brexit issues also weigh on the currency. GBPUSD is bearish below 1.2550.

USDJPY is trading just above the overnight low after chopping around in a 128.96-129.53 band.  Traders ignored rising US Treasury yields even as BoJ officials reiterate the need for ultra easy-monetary policy. Japan’s GDP shrank 0.2% q/q (-0.4% expected).

AUDUSD traded sideways in a 0.6972-0.7045 band after data suggested aggressive RBA rate hikes may not be needed. NZDUSD traded narrowly in a 0.6342-0.6369 range, tracking broad US dollar sentiment.

Chart of the Day-oil daily

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

Chart: Saxo Bank

China Snapshot –

Today’s Bank of China Fix 6.7421   Previous 6.7854

Shanghai Shenzhen CSI 300 fell 0.35 % to 3,991.91

Goldman Sachs analysts reduced China 2022 GDP forecast to 4.0% y/y from 4.5% y/y.

Stocks rally as the tech stock clampdown eases and Shanghai reopens.

Chart: USDCNY 1 month

Source: Yahoo Finance