Photo: BingAI

June 28, 2023

  • Soft inflation readings weigh on CAD and AUD.
  • Hawkish rate comments from ECB officials underpin EURUSD.
  • US dollar rises after data supports higher US rates.

FX at a glance

 Source: IFXA Ltd/

USDCAD Snapshot: open 1.3224-28, overnight range 1.3191-1.3274, close 1.3192

USDCAD corrected higher yesterday, rising from a low of 1.3119 in Asia to close at 1.3192 following a mix of soft Canadian inflation and robust US economic data. The rally continued overnight after Australian inflation was lower than expected, leading to broad commodity bloc currency weakness.

Headline Canadian inflation slowed to 3.4% y/y in May, which was expected but well below April’s 4.4% result. The Bank of Canada’s preferred inflation gauges, CPI-Trim and CPI-median, rose an average of 3.85%, which was below the 4.25% average in May.

The results should put a smile on the faces of BoC Governor Tiff Macklem and his colleagues, but analysts are mixed as to whether the BoC will pause or hike rates on July 12.

The USDCAD rally, post-CPI, was exacerbated by robust US economic data, including strong Durable Goods Orders and better-than-expected Consumer Confidence. “Consumer confidence improved in June to its highest level since January 2022, reflecting improved current conditions and a pop in expectations,” said Dana Peterson, Chief Economist at The Conference Board. Traders ignored her comment that the expectations gauge continued to signal consumers expect a recession in the next 6-12 months.

USDCAD received a bit of support from sinking oil prices. WTI oil fell from $70.12 yesterday to $67.08/b overnight, before recovering to $68.18 in NY. Month-end portfolio rebalancing may be behind the choppy price action.

USDCAD may struggle to make gains above 1.3270 as the level represents the June downtrend line on daily and four-hour charts. In addition, the S&P 500 has gained over 3.0% month-to-date and 14.49% year-to-date, suggesting portfolio managers may need to sell USDCAD to rebalance portfolios.

USDCAD Technical Outlook

The USDCAD technicals turned bullish with the break above 1.3140 yesterday, and the move above 1.3180 reinforced the uptrend. The move is merely a much-need correction while below 1.3270 and required to alleviate over-sold positioning.

However, a decisive break above the 1.3270-80 area would suggest a short-term bottom is in place and target 1.3340.

For today, USDCAD support is at 1.3180 and 1.3140. Resistance is at 1.3280 and 1.3310

Today’s range 1.3190-1.3290

Chart: USDCAD  daily

Source: Saxo Bank

G-10 FX recap

Wall Street closed in a happy mood, with the S&P 500 finishing the session with a gain of 1.15%. Traders shrugged off robust US data reports that supported higher Fed rates because the data indicated that a recession may be avoided. European bourses are perky, with the French CAC index leading the pack higher, rising 0.78%. The US 10-year Treasury yield is steady at 3.737%.( as of 5:30 am PDT)

European markets are focused on the ECB’s Central Bank Conference. Yesterday, President Christine Lagarde repeated that ECB rates need to rise to curb inflation. That sentiment was echoed by many colleagues.

Today, traders are awaiting comments from Fed Chair Powell, Bank of England Governor Bailey, and Bank of Japan Governor Ueda.

The US dollar opened with a mixed tone compared to the New York close. The commodity bloc currencies suffered the most, while the Japanese yen opened unchanged.

EURUSD traded narrowly in a 1.0929-1.0962 range with the bottom occurring in NY trading. Prices are Hawkish ECB rhetoric is slowing losses, but a poor German Gfk Consumer Confidence survey capped gains.

GBPUSD dropped from 1.2751 in Asia to 1.2644 in NY. The slide was exacerbated by comments from Bank of England Chief Economist admitting that the bank’s forecasting was not very accurate.  In additions EURGBP demand is weighing on GBPUSD.

USDJPY traded in a 143.74-144.44 range and is at the top of that band in NY.  Robust US data supporting at least two more Fed rate hikes contrasts sharply with the dovish outlook from the Bank of Japan. Traders are defying Japanese Finance Ministry officials warning against “excess moves.”

AUDUSD  traded negatively, falling to 0.6609 in NY from a peak of 0.6688 in Asia after Australian inflation fell further than anticipated in May.  The RBA’s monthly CPI index rose just 5.6% in May compared to 6.8% in April.  The results suggests the RBA will adopt a less aggressive monetary policy stance.

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

Source: Bloomberg

China Snapshot

Bank of China Fix: 7.2101, previous 7.2098

Shanghai Shenzhen CSI 300 fell 0.12% to 3840.80.

Biden administration considering a ban on A1 Chop exports to China and a restriction on cloud services to Chinese AI companies.

Chart: USDCNY 6 month

Source: Bloomberg