January 23, 2020

USDCAD open (6:00 am EST)  1.3163-68   Overnight Range 1.3135-1.3169

USDCAD continued to climb overnight after another of Bank of Canada Governor Stephen Poloz’s soon-to be patented monetary policy flip-flops.  Prior to yesterday’s meeting, the BoC set the tone for a neutral monetary policy statement.  Those who believed them were skewered.

Asia traders continue to be wary about the Wuhan coronavirus.  China is ramping up efforts to contain the outbreak by banning travel from three cities ahead of the start of the Chinese New Year on January 25.  Eurozone traders are awaiting the results of the European Central Bank policy meeting.

The Canadian dollar is the worst performing major G-10 currency against the US dollar, since yesterday’s New York opening level and the only one to lose ground.

Chart: Currency gain/loss(%) against the US dollar from NY open Jan.22 to NY open Jan 23.

Source: Saxo Bank/ IFXA Ltd

EURUSD marked time in a 1.1080-1.1098 range, ahead of today’s ECB meeting. Analysts do not expect any changes to the policy outlook. Instead, they are waiting to review the parameters of the ECB’s strategic review about its performance since 2003.  Inflation measures, financial stability and even climate change are up for discussion. The intraday technicals are modestly bearish below 1.1130 looking for a retest of support at 1.1060.

USDCHF traded in a narrow 0.9675-0.9693 range. Swiss National Bank Governor Jordan said that negative interest rates were still needed in Switzerland and warned that he could cut rates further if needed. He also said that he doesn’t see a new minimum exchange rate but noted the currency remained highly valued.

GBPUSD languished in a 1.3120-50 range. Prices continue to consolidate gains after earlier UK economic data, lowered the odds of a rate cut at the end of the month. The intraday technicals are bullish above 1.3080, looking for a decisive break above the 1.3150-60 area to extend gains to 1.3230.

USDJPY dropped from 109.85 to 109.50 on renewed safe-haven demand for yen, due to the coronavirus. US 10-year Treasury yields fell from 1.778% to 1.741%, which also weighed on prices. The intraday technicals are bearish below 110.00, with a break below the 109.30-40 area suggesting further losses to 108.30.

AUDUSD snapped a one-week downtrend after a stellar employment report. Australia added 28,900 jobs (forecast 15,000) and the unemployment rate dipped to 5.1% from 5.2%. The results downgraded risks that the Reserve Bank of Australia would cut interest rates any time soon. AUDUSD jumped from 0.6840 to 0.6877 and is trading at the top of that range. NZDUSD lagged the AUDUSD move and opened unchanged.

WTI oil has caught the coronavirus.  Traders are spooked by fears the virus will negatively impact China growth and thus, crude demand. The American Petroleum Institute report that US crude inventories rose 1.6 million barrels in the week ending January 17 exacerbated the sell-off. WTI dropped 15.3% since January 8.

USDCAD soared after the Bank of Canada put a rate cut on the table. The drop in oil prices underpinned prices as well.  CIBC economists have pencilled in a 25 bp cut at the April 15 meeting. The rally from 1.3038 yesterday to 1.3170 overnight occurred because Governor Poloz and company had set the market up to expect a neutral outlook and traders were short USDCAD.  The BoC used to describe the domestic interest rate level as “appropriate.” That is no longer the case due to slowing job creation and business investment.

Today’s US data releases include Weekly jobless claims data. The Canadian calendar is empty.

USDCAD Technical Outlook

The intraday technicals are bullish while prices are above 1.3050 and looking for a break of double-top resistance at 1.3170 to extend gains to 1.3320.  A failure to extend above 1.3170, followed by a drop below 1.3105, warns of more 1.2950-1.3170 consolidation.   For today, USDCAD support is at 1.3130 and 1.3090.  Resistance is at the 1.3170-90 area and then 1.3250. Today’s range 1.3130-1.3190

Chart: USDCAD daily

Source: Saxo Bank