October 31, 2019

USDCAD open 1.3172-76 (6:00 am EDT)    Overnight Range 1.3151-1.3176

Canada GDP rose 0.1% m/m in August, better than the July result but a tick below the 0.2% forecast.  USDCAD did not react to the news as traders are still pondering yesterday’s Fed and Bank of Canada decisions. 

The Bank of Canada left rates unchanged yesterday but indicated lower rates were in the pipeline. USDCAD soared, triggering stop-loss buying above resistance at 1.3240 while suggesting a short term floor is in place at 1.3040. The USDCAD rally was in the face of broad US dollar weakness against the major G-10 currency pairs (except yen) following a hawkish FOMC rate cut yesterday afternoon.

The FOMC meeting results were not a surprise to most analysts, although the US dollar sell-off suggests some traders were caught off-guard. The Fed lowered the fed funds range to 1.75-2.00% and indicated that they had shifted to park.

The US dollar closed yesterday with losses across the board (except against CAD) and extended those gains overnight, although CAD and AUD were a tad lower. A weak US dollar was the theme for October. The greenback lost ground against all the G-10 major currencies, led by a loss of 5.3% against the British pound.

FX Market Snapshot

Change in currency value against the US dollar from NY open Oct. 1- to NY open Oct. 31 

Asia FX markets opened and sold US dollars with USDJPY breaking the path lower and starting this morning’s session at the bottom of the 108.28-89 range. Falling US 10-year Treasury yields greased the skids, dropping from 1.837% to 1.745% overnight. The Bank of Japan policy meeting delivered as expected. The BoJ left rates unchanged but left the door open to further easing.

AUDUSD extended its New York gains, rising to 0.6928 from 0.6902 supported by strong Building Permits data. However, weaker than expected, China Manufacturing PMI data capped the gains. Prices retreated to 0.6892 at today’s New York. Sellers were encouraged by fresh signs of friction with the US/China trade talks. There are reports that China is not interested in discussing long-term structural reforms or in having Phase 2 of the negotiations if tariffs are in place. NZDUSD tracked AUDUSD moves.

EURUSD consolidated yesterday’s gains. The single currency rallied from 1.1103 ahead of the FOMC to 1.1150 by the close and extended that move in a 1.1155-1.1174 range overnight. Eurozone CPI for October was 0.7%, as expected but the September Unemployment rate ticked up to 7.5% from 7.4%. German Retail Sales, at 3.4% y/y, were a tad higher that the August result.

GBPUSD took full advantage of the Brexit delay and the post-FOMC sell-off to rally from 1.2899 at the close to 1.2954 in early New York trading.

US data reports, including PCE Price index and jobless claims, were in line with forecasts.  However, the proximity to yesterday’s Fed announcement diminished their impact on trading.  USDCAD is vulnerable to month-end, portfolio rebalancing selling.

 USDCAD Technical View

The USDCAD technicals flipped to bullish with the break above resistance at 1.3110 and again at 1.3140, setting the stage for further gains to 1.3260. The break above 1.3140 suggests a short-term bottom is in place at 1.3040. For today, USDCAD support is at 1.3140 and 1.3110. Resistance is 1.3190 and 1.3240. Today’s Range 1.3110-1.3190

Chart: USDCAD 4 hour

Source: Saxo Bank