March 3, 2022

  • USDCAD snaps month-long uptrend
  • Geopolitical risks weigh on global risk sentiment
  • US dollar steady, commodity currencies outperform

FX at a Glance 24 hours

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2320-24, overnight range-1.2589-1.2653, close 1.2653

USDCAD reacted to soaring oil prices and the 0.25% Bank of Canada rate hike and traded lower.  The retreat started slowly falling from 1.2696 pre-BoC, to 1.2670 by lunch, then another leg lower in tandem with the rebounding S&P 500 index and rising oil prices. USDCAD accelerated lower in Asia with WTI jumping to 116.00

The Bank of Canada acknowledged a new level of uncertainty due to Russia’s invasion of Ukraine.  The statement warned about the inflationary risk from rising commodity prices and new supply chain disruptions.

However, officials are concerned that longer-run inflation expectations could drift upwards necessitating more interest rate hikes.

WTI rallied from yesterday’s low of $105.75/barrel to $116.49/b in early European trading as traders appeared to self-sanction to avoid being a pawn in a sanction derby.   Russian crude is being shunned after the US imposed sanctions on Russia’s oil refining sector, and traders fear crude shipments are next on the list.

The IEA reported US crude inventories dropped by 2.6 million barrels as of February 25, which added to supply concerns.

Despite oil prices trading a 9-year peak and the BoC kicking off a series of interest rate hikes, the USDCAD retreat stalled due to negative risk sentiment and prices bounced to 1.3640 in NY trading.

BoC Governor Tiff Macklem will explain the rate hike decision in a speech at 11:30 am today.

USDCAD technical outlook

The intraday USDCAD technicals turned bearish with the move below the January uptrend line in the 1.2640-60 area and targets support in the 1.2550 area and then the CAD 80 cent level of 1.2500.  A rally above 1.2660 will extend gains to 1.2710.

For today, USDCAD support is at 1.2550 and 1.2510.  Resistance is at 1.2660 and 1.2710. Today’s Range 1.2580-1.2660

Chart USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

Fed Chair Jerome Powell gave the nod to a 0.25% rate hike at the March 16 FOMC meeting but alluded to the possibility of 0.50% hikes at later dates if inflation continued to exceed the Fed’s expectations.  The comments knocked bonds for a loop sending the US 10-year Treasury yield to 1.858% today from 1.702 yesterday morning.  Mr Powell repeats his testimony today to the Senate Banking Committee.

Russia and Ukraine headlines and the threat of additional and harsher sanctions on Russia overshadow economic data and drive market direction.  Western authorities are going after assets of Russian oligarchs tied to Putin.  France seized the 280-foot yacht Amore Vero, owned by Rosneft CEO Igor Sechin.  Perhaps they will chop it up to heat the Palais Bourbon.  A second round of peace talks is reportedly scheduled at 1200 GMT in Belarus.

Asia equity indexes took their cue from Wall Street’s positive close and posted gains, with Australia’s ASX 200 supported by higher commodity prices.  European bourses opened flat then traded lower, with the German DAX index down 0.66%.  S&P 500 and DJIA futures are in negative territory and gold gained 0.87%.

US weekly jobless claims fell 16,000 to 215,000, which is neither here nor there for FX markets, after Mr Powell indicated interest rates were going up in two weeks.  Economic data has been relegated to the back-burner as the focus is on geopolitics.

EURUSD is trading at its overnight session low, falling from 1.1120 to 1.1072. The single currency is on the defensive due to fall-out from the Russian invasion and the US interest rate outlook. The ECB minutes suggest that policymakers are debating about risks to changing policy too late.  German and Eurozone Services PMI data also were weaker than expected while the EU Producer Price Index soared to 30.6% y/y in January which suggests inflation is becoming a nasty problem in the EU, despite the ECB’s view.

GBPUSD chopped around in a1.3364-1.3417 range, with traders ignoring February Services PMI data, (actual 60.5 vs 60.8 in January).  The prospect of a Bank of England rate hike this month, and EURGBP selling underpins prices.

USDJPY drifted higher in a  115.46 to 115.80  range, with safe-haven demand for yen slowing gains from rising US Treasury yields.

AUDUSD and NZDUSD are at or above their overnight peak levels thanks to higher commodity prices.

Chart of the Day: EURUSD

Source: Saxo Bank

FX open, high, low, previous close as of 6:00 am ET

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3016 previous 6.3351

Shanghai Shenzhen CSI 300 fell 0.59% to 4,551.63

Caixin February Services PMI 50.2 vs forecast 53.0 and January 51.4

             February Composite PMI 50.1, unchanged from January

Chart: China 1 month

Source: Saxo Bank