Picture: YouTube

October 14, 2021

USDCAD sinks on improved risk sentiment and higher oil prices

“Risk-on” returns after US CPI data ignored and FOMC minutes stale

Commodity currency bloc soars-US dollar opens with losses across the board

FX at a Glance:

Source: IFXA/RP

USDCAD Snapshot   Open 1.2378-82, Overnight Range 1.2379-1.2443, Previous close 1.2442

USDCAD accelerated lower overnight, smashing below support in the 1.2405-20 area due to a positive shift in global risk sentiment and higher oil prices.  WTI oil rallied despite API reporting crude inventories rose by 5.2 million barrels.  That’s because gasoline inventories and distillate stocks dropped. Traders also focused on news that the US Energy Information Administration (EIA) raised their 2021 oil demand forecast by 90,000 barrels/day, while predicting weaker than expected US crude output. Traders were in a “risk-on” after the FOMC minutes did not reveal any landmines and slightly higher US inflation data didn’t create any turmoil.  Canada Manufacturing Sales are expected to rise 0.5% in August, but the data is second-tier.  USDCAD traders are guided by Wall Street price action and broad US dollar moves.

Technical view:  The intraday USDCAD technicals are bearish below 1.2440, which guards the September 20 downtrend line at 1.2590. There is support at 1.2360 which represents the 61.8% Fibonacci retracement of the June-August range.  If broken it suggests further losses to the 76.4% 1.2224 level.  USDCAD needs to break above 1.2590 to negate the downward pressure.

For today, USDCAD support is at 1.2340 and 1.2275.  Resistance is 1.2410 and 1.2440. Today’s range 1.2340-1.2410

Chart USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

The overnight US dollar sell-off paused following the release of the US weekly jobless claims report.  Initial claims fell 36,000 to 293,000 in the week ending October 9, the lowest level since March 14, 2020. 

The US September PPI data came in better than expected but worse than the August results.

The US dollar recouped some of its overnight losses, while Wall Street equity futures stayed firm, ignoring the data.

The FOMC minutes did not provide any new insight into the outlook for US monetary policy.  They suggested that the Fed will likely begin tapering QE purchases in November or December, which was confirmed by many policymakers since the September 22 meeting.

US inflation did not spark any FX turmoil.  The results may have been dismissed due to concerns that supply chain disruptions were inflating the data.

Traders also ignored red-hot China PPI, which posted a record high of 10.7% in September, largely due to higher energy costs.

Asia stock markets were in rally mode with Japan’s Nikkei 225 gain of 1.40% leading the pack higher.  Hong Kong markets were closed for a holiday, and China’s Shenzhen CSI 300 dipped.

European bourses posted gains.  Germany’s DAX index extended its overnight rally and has risen 1.11% in early NY trading. S&P 500 jumped 0.93% and point to a positive open on Wall Street.  WTI oil rose 1.2% and gold gained 0.34%. US 10-year Treasury yields are at 1.536%.

Turkey President Erdogan fired three central bankers who disagreed with his wish to cut interest rates.  Mr Erdogan’s formal education ended in primary school while; the central bankers have Ph.D.’s in economics.  USDTRY rallied on the news and has gained 6.0% since September 23, when interest rates were cut from 19% to 18%.

EURUSD snapped the September 13 downtrend, climbing from 1.1589 to 1.1624, due to the improved risk tone.  That gain was not sustained, and prices revisited the 1.1600 level after the US data. A group of German economic forecasters trimmed their 2021 GDP forecast to 2.4% from April’s 3.7%, blaming supply chain woes for the move. EURUSD needs a decisive break above 1.1660 or it risks another drop.

GBPUSD traded in a 1.3659 to 1.3733 but dipped to 1.3704 following the US data. Comments by Bank of England policymaker Silvana Tenreyro may limit gains.  She said the UK economy was weaker than the BoE forecast.

USDJPY was rangebound in a 111.22-111.59 band, with direction determined by US Treasury yields.

AUDUSD and NZDUSD tracked broad US dollar moves.  Australia’s employment data was mixed.  Australia lost 138,000 jobs but full-time jobs increased 26, 700 and the unemployment rate dipped to 4.8%.

Chart of the Day- USDTRY (Turkish Lira)

Chart: Saxo Bank

FX open, high, low, previous close

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.4412, Previous 6.4612

Shanghai Shenzhen CSI 300 fell 0.54% to 4,913.61

September CPI actual 0% vs forecast 0.2%, August 0.1%

September PPI actual 10.7% vs forecast 10.5%, August 9.5%

Chart: USDCNY 1 month

Source: Yahoo Finance