March 29, 2023

  • Month and quarter end flows sinking US dollar.
  • Rising oil prices weighing on USDCAD.
  • US dollar extends losses since yesterday, CAD outperforms.

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3586-90, overnight range 1.3587-1.3615, close 1.3598

USDCAD is grinding lower and has been doing so since last Friday.  Broad US dollar weakness stemming from fading fears of a banking crisis, rebounding oil prices, and month-end buying of Canadian dollars are squeezing long dollar positions.

WTI oil prices climbed from $73.53 to $74 .19 in NY and continue to climb due to the Iraq/Turkey dispute that has halted shipments of 450,000 barrels/day.  Prices got an added boost after the American Petroleum Institute (API) report crude inventories fell by 6.07 million barrels last week.

The Federal Government’s 2023 budget increased spending by about $70 billion which is partly offset by $46 billion in new taxes. We all know that the budget will balance itself, but that feat of magic may not occur in your lifetime.

USDCAD Technical Outlook

The intraday USDCAD technicals are bearish while trading below 1.3630 and looking for a decisive break below 1.3570 to extend losses to 1.3510. The 100 day moving average comes into play at 1.3515.  A break above 1.3640 negates the downside and shifts the focus to 1.3800.

Longer term.  Bollinger bands and RSI studies suggest USDCAD is becoming very oversold.

For today, USDCAD support is at 1.3570 and 1.3510.  Resistance is at 1.3630 and 1.3660.

Today’s range 1.3530-1. 3610..

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

Traders were encouraged by the better than expected US Conference Board Consumer Confidence Index results yesterday, as the survey was conducted during the SVB mess.

Consumer Confidence increased slightly in March to 104.2 up from 103.4 in February. The Present Situation Index decreased to 151.1 from 153.0 and the Expectations Index ticked up to 73.0 from 70.4 in February.

Month-end and quarter-end portfolio rebalancing flows are also disrupting markets and a lack of top tier US economic data may exaggerate FX volatility.

The major Asian equity indexes roared higher with the gains fueled by news that Alibaba plans to reorganize its business and break up into six business groups.  The Hong Kong Hang Seng index surged 2.06% and Japan’s Nikkei 225 index closed with a 1.32% gain.

European bourses opened in positive territory and extended the gains with the French CAC 40 rising 1.26%. S&P 500 futures have risen 0.95% (as of 5:50 am).  WTI climbed on the back of the weaker US dollar, rising 0.90% from the NY close on Tuesday, while gold inched down 0.28%.  The US 10-year Treasury yield is steady at 3.541% while the 2-year Treasury yield is at 4.01%.

EURUSD climbed from 1.0819 in early European trading to 1.0862 in NY due to month-end US dollar selling and a generally positive risk tone.  The EURUSD technicals are bullish above 1.0760, looking for a test of the 1.1000 area.

GBPUSD rallied from 1.2306 to 1.2357.  Month-end flows and an upbeat report from Goldman Sachs have given sterling a boost. The investment bank expects modest economic growth in the second quarter and thinks the BoE forecasts are too pessimistic.  The short-term GBPUSD technicals are bullish above 1.2280.

USDJPY rallied steadily overnight, rising from 130.77 in Asia to 132.09 just before NY opened, the slipping to 131.70. The improved risk sentiment tone stemming from a lack of new banking crisis’s, steady to slightly firmer US Treasury yields, and Japanese year end flows boosted USDJPY.

AUDUSD dropped from 0.6712 to 0.6663 due to weaker than expected inflation in February. CPI rose 6.8% y/y compared to the consensus forecast for a 7.1% y/y in crease, and the January result of 7.4% y/y, which sparked a debate about around the RBA rate decision net week.

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

Source: Saxo Bank

China Snapshot

Bank of China Fix:  6.8771, Previous: 6.8749

Shanghai Shenzhen CSI 300 rose 0.17% to 4006.14.

ING economists suggest the CNY 850 billion of liquidity that the PboC pumped into markets since March 21, may be a positive sign for economic growth. They also expect unchanged policy rates in 2023.

Chart: USDCNY 1 month

Source: Bloomberg