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November 28, 2023

  • Canadian dollar outperforms in dull overnight session.
  • Fed officials talking up a storm today.
  • US dollar opens mixed in cautious overnight session.

FX at a Glance

Source: IFXA/RP

USDCAD Snapshot: open 1.3584-88, overnight range 1.3575-1.3622, close 1.3617

The Loonie legged it higher overnight. It tracked US dollar moves against the majors and managed to keep open in NY as the best performing G-10 currency, compared to Monday’s open.

What’s driving the USDCAD weakness? Nothing domestically and certainly not crude prices. WTI oil languished in a $74.71-$75.21 range overnight, little changed from Friday. Oil traders are biding their time until OPEC meets on November 30. Earlier rumors of production cuts have met with other rumors that many cartel members do not support the idea. In addition, selling pressure stems from speculators sharply reducing long oil positions, which Bloomberg says are at a seven-month low.

USDCAD retreated as falling US 10-year Treasury yields, which dropped from 4.492% at yesterday’s open to 4.388% by the close, added to convictions that US rates have peaked. The CME Fedwatch tool odds for a May 1 rate cut are 51%.

BoC Governor Tiff Macklem said that interest rates may be restrictive enough already and claimed that “excess demand in the economy is now gone.” How does he know? Excessive demand is not quantifiable The BoC track record for forecasting is poor, so its estimates of excessive demand are likely as useful as a losing lottery ticket. The reality is inflation hasn’t been tamed. It just isn’t rising as fast as it was, and everything costs far more than it did before the pandemic.

USDCAD Technicals:

The intraday USDCAD are bearish while prices are below1.3610 looking for a breech of 1.3570 to extend losses to 1.3530, then 1.3505.  A break above 13610 targets 1.3660.

Longer term, the USDCAD downtrend from the November 1 peak is intact while prices are below 1.3770 while the uptrend line from July comes into play at 1.3580. Fibonacci retracement analysis suggests that the break below the 1.3596 level (61.8% retracement of July-November range)  puts 1.3505 in play ( the 50% Fibo level).

For today, USDCAD support at 1.3550 and 1.3510..  Resistance is at 1.3590-1.3630.  Today’s range 1.3520-1.3620.

Chart: USDCAD daily

Source: Daily FX

G-10 FX recap

Traders have paused to re-evaluate things. The November equity rally was fast and furious, and now some believe it’s overdone. The S&P 500 closed with a small 0.20% loss, and SPX futures are trading slightly negative (-0.08%) in NY. European bourses are all in the red, led by a 0.40% drop in the UK FTSE 100. Asian equity indexes closed on a mixed note. Japan’s Nikkei lost 0.12% while Australia’s ASX rose 0.39%.

It is also close to month-end, and that means portfolio rebalancing flows will add another layer of volatility to price action.

Traders are hoping that Fed policymakers Austan Goolsbee, Christopher Waller, and Michele Bowman will offer up fresh insight into the Fed’s interest rate outlook, but don’t hold your breath. Fortunately, the Consumer Confidence and the Case-Shiller Home Price indexes may be enough to spark some excitement.

EURUSD was topsy-turvy as it dropped then rallied in a 1.0934-1.0963 range. Traders are also considering the impact of ECB President Christine Lagarde’s comments to the EU Parliament where she suggested the ECB may accelerate quantitative tightening.

GBPUSD traded in a 1.2607-1.2642 range, garnering a bit of support from EURGBP selling. GBPUSD is also underpinned following comments by Deputy Governor Dave Ramsden, who suggested UK rates will remain in restrictive territory for an extended period.

USDJPY dropped then popped in a 147.99-148.84 range with price action mirroring changes in the US 10-year Treasury yield.

AUDUSD traded in a 0.6598-0.6632 range with traders ignoring weaker than expected October retail sales data (actual -0.2% m/m vs. forecast 0.1%).

FX high, low, open (as of 6:28 am ET)


China Snapshot

PBoC fix: today 7.1132, expected 7.1432, previous 7.1159.

Shanghai Shenzhen CSI 300 rose 0.19% to 3518.52.

PboC Governor Pan claims the economy will achieve its GDP growth target for 2023.

­Chart: USDCNY (onshore) vs USDCNH (offshore)