December 13, 2024

• The focus has shifted to next week’s FOMC meeting
• Canada and US trade war rhetoric heats up.
• USD grinding -high-Loonie sinking like a rock.

FX at a Glance

Source: IFXA/RP

USDCAD open 1.4221, overnight range,1.4213-1.4244, close 1.4220

The Canadian dollar is battered, bruised, and down for the count.

A concoction of U.S. economic data that includes relatively tame inflation, resilient employment numbers, and the promise of a new round of tariffs by the incoming Trump administration has downgraded the U.S. interest rate outlook and fueled demand for U.S. dollars. Throw in a bit of geopolitical threats, such as Trump talking of a pre-emptive strike on Iran’s nuclear facilities, and safe-haven demand for greenbacks is added to the mix.

That’s not all. A host of made-in-Canada issues are adding to the Loonie’s woes. The Canadian economy is extremely weak and greatly underperforming that of its largest trade partner, necessitating the Bank of Canada to cut interest rates aggressively. Many economists are forecasting that rates will be cut to 2.0% by the end of 2025. Canada and U.S. interest rate spreads are at their widest since 2015, at -118.6.

The Federal government is spending money without any concerns about dangerously high debt and deficits. The latest “GST” holiday is a short-lived economic boost that will not have any lasting benefit.

The Province of Ontario is threatening to cut off electricity exports to the U.S. if Trump imposes tariffs. Trump did not care. He said, “That’s OK if he does that, that’s fine. The United States is subsidizing Canada, it’s truly a subsidy and we shouldn’t have to do that.”

Trump is probably aware that electricity flows in both directions. There have been at least five major power blackouts affecting Ohio, Michigan, New York State, and Ontario since 2000. All originated in America. Ontario relies heavily on interconnections with the U.S. for electricity imports, especially during peak periods. The U.S. could isolate certain transmissions that connect to Ontario while maintaining power to U.S. states. Theoretically, they could curtail power flowing into Ontario, prioritizing domestic U.S. needs and reducing exports. And that can’t be good for the economy or the Canadian dollar

Canada’s Climate Change Zealot, Stephen Guilbeault, is doing his best to ensure the Canadian economy is a smoldering ruin by the time he is voted out of office in 10 months or so. He announced that Canada will cut carbon emissions to 45-50% below 2005 levels by 2035. With any luck, the next government will scrap the entire department, and every climate policy enacted since 2016.

There are $1.0 billion of USDCAD 1.4225 and $1.7 billion of 1.4275-85 strikes maturing today.

Canadian Manufacturing Sales rose 2.1% m/m in October while Wholesale Sales rose 1.0%.

USDCAD Technicals

The intraday  USDCAD technicals are bullish following another break above resistance, this time at 1.4190 which will now revert to support. A break below will extend losses to 1.4160, then 1.4120. A move above the overnight peak suggests gains to 1.4280,

USDCAD is not at extreme over bought levels.  The Bollinger band 3^rd Standard deviation is at 1.4325, which should cap any gains in the short term. If it does it risks a retest of support at 1.4130

For today, USDCAD support is 1.4190 and 1.4130. Resistance is 1.4250 and 1.4290.

Today’s Range: 1.4170-1.4270.

Chart: USDCAD daily

Source: Oanda.com                                         

EURUSD

EURUSD traded defensively in a 1.0453-1.0496 overnight. Yesterday, the ECB cut rates by 25 bps and indicated further rate cuts were in the pipeline. ECB policymakers have been chirping up a storm with most agreeing with the consensus that rates will go lower.

GBPUSD

GBPUSD extended yesterday’s losses and traded in a 1.2619-1.2684 range overnight. Traders were unhappy with economic growth, which shrank in October. GDP fell 0.1% compared to the forecast for a 0.1% gain, and it is the second consecutive month of a 0.1% dip. Manufacturing Production and Industrial Production were also weaker than expected.

USDJPY

USDJPY rallied steadily, rising from 152.46 to 153.60, where it trades in NY. Japan’s Tankan Survey improved by 1 point to 14 from 13, suggesting that companies are more optimistic about business conditions. Prices continue to be supported by diminishing odds for a BoJ rate hike next week combined with higher US Treasury yields.

AUDUSD and NZDUSD

AUDUSD traded sideways in a 0.6354-0.6376 range, with the topside limited by broad US dollar strength and ongoing Chinese economic issues. NZDUSD traded in a 0.5756-0.5773 band, with slightly weaker PMI data having no impact.

USDMXN

USDMXN traded in a 20.1805-20.2610 range, and prices are now below yesterday’s NY close level of 20.2148. USDMXN has been trending lower since November 25, when prices peaked at 20.8366. However, the downside remains supported by expectations that Banxico will cut rates at next week’s meeting.

BTCUSD (Bitcoin)

BTCUSD continues to dance around the 100,000 level and spent the overnight session in a 99,226-102,360 range. The promise of a crypto-friendly regime under the Trump administration is underpinning prices.

FX high, low, open (as of 6:00 am ET)

Source: Investing.com

China Snapshot

PBoC Fix: 7.1876 vs exp. 7.2745 (prev. 7.1854)

Shanghai Shenzhen CSI 300 fell 2.37% to 3933.18

Chinese investors are not buying what the politicians are selling. Policymakers continuously pledge to boost the economy but fail to provide any details which helped drive the CSI 300 down by 2.37% today.

Chart: USDCNY and USDCNH

Source: Investing.com