- Canada inflation soars to 6.7% y/y in March
- Global equity indexes rebound as risk sentiment improves
- US dollar slides across the board
FX change at a glance: 24 hours
Source: IFXA Ltd/RP
USDCAD Snapshot: open 1.2542-46, overnight range 1.2518-1.2623, previous close 1.2623
USDCAD slid steadily overnight due to improving risk sentiment as global stock markets rallied and the WTI oil price slide stalled.
The slide accelerated in NY fueled by a steep rise in Canadian inflation. Stats Canada reported “consumer prices increased 6.7% year over year, one percentage point higher than the gain in February (+5.7%). This was the largest increase since January 1991 (+6.9%).” The month over month increase was 1.4% compared to the 1.0% forecast.
Even worse, the increase was spread across the eight major components.
The news was not unexpected by the Bank of Canada but even so, the sharp increase makes an ironclad case for another 0.50% rate hike at the June 1 monetary policy meeting.
USDCAD continues to be undermined by steady to firm oil prices. WTI traded choppily in a $100.33-$109.70 since Monday. Prices are weighed down by the IMF downgrading its global growth forecast to 3.6% from 4.4%, blaming Russia’s invasion of Ukraine for the move. China’s ongoing COVID outbreak and subsequent lockdowns are another oil negative. Opec’s refusal (and inability) to boost production to offset supply concerns underpins prices and by default, the Canadian dollar.
High oil prices, the risk of sharply higher domestic interest rates, and USDCAD’s failure to gain any traction above 1.2680 suggest the path of least resistance for USDCAD is lower.
USDCAD technical outlook
The intraday USDCAD technicals are bearish following the break of 1.2580, the April 8 uptrend line, which targets 1.2520 (the 61.8% Fibonacci retracement level of the April 8-April 13 range). A move below 1.2520 suggests further losses to 1.2480, then 1.2420. Longer term, the break of support at 1.2590 targets 1.2380.
For today, USDCAD support is at 1.2520 and 1.2480. Resistance is at 1.2570 and 1.2590. Today’s Range 1.2480-1.2570
Chart: USDCAD hourly
Source: Saxo Bank
G-10 FX recap and outlook
Global traders have apparently forgotten why a recent spate of hawkish Fed-speak bothered them and appeared to have gotten over Russia’s latest offensive in Ukraine. Global risk sentiment has taken a turn for the better, and the US dollar is in retreat.
Asian equity traders mostly ignored developments in China and bought stocks. Australia’s ASX 200 closed just above unchanged, while Japan’s Nikkei 225 gained 0.86%. European equity traders shook off opening hour jitters and proceeded to buy stocks, with Germany’s DAX gaining 1.22% and the French CAC index adding 1.36%. DJIA and S&P 500 futures are trading modestly higher. Gold and oil prices have posted marginal gains, while the 10-year US Treasury yield dropped from 2.973% in Asia to 2.874% in early NY.
It may not be clear sailing.
The US is increasing pressure on China and India for ignoring sanctions on Russia. The US threatens to punish businesses that provide services to Russian airlines flying into China or India. Understandably, neither country cares.
EURUSD traded sideways in Asia then rallied in Europe, supported by a jump in German Producer Prices in March (actual 4.9% m/m vs forecast 2.6% and February 1.4%). ECB policymaker Martin Kazaks said rates could rise in July due to “significant inflation risks” which underpinned prices, while tonight’s French debate between Macron and LePen limits gains. The intraday EURUSD technicals turned bullish with the break above 1.0820. A decisive break above 1.0870 targets 1.0930.
GBPUSD traded is trading at the top of its ragged 1.2996-1.3065 overnight range due to broad US dollar weakness. The break above resistance at 1.3040 risks further gains to 1.3160.
USDJPY came within spitting distance of 1.3000 overnight after the BoJ intervened to keep JGP yields below 0.25%, even as the US 10-year Treasury yield climbed to 2.973%. USDJPY dropped to 127.61 in NY on profit-taking after Treasury yields retreated.
AUDUSD and NZDUSD rallied on improved risk sentiment. AUDUSD got an added boost from expectations the RBA will raise rates sooner than expected. NZDUSD was supported by forecasts for inflation to reach a 30-year peak when CPI is released on Thursday.
Source: Saxo Bank
FX open, high, low, previous close as of 6:00 am ET
Chart: Saxo Bank
Today’s Bank of China Fix 6.3996 (Previous Fix 6.3720)
Shanghai Shenzhen CSI 300 fell 1.55% to 4,070.79
PBoC surprises markets and leaves RRR rate unchanged. 1-year 3.70%, 5-yr 4.60%.
Vice Foreign Minister Le Yucheng said China will continue to strengthen ties with Russia.
China signs security pact with Solomon Islands, much to the chagrin of Australia and New Zealand.
Chart: China hourly, 1 month
Source: Yahoo Finance