April 8, 2022

  • Canada’s LibNDP coalition releases tax and spend budget fantasy
  • Canada gains 72,600 jobs in March-record low unemployment rate
  • US dollar opens with bid following hawkish Fed speak

FX change at a glance: 24 hours

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2591-95, overnight range 1.2578-98, close 1.2592

USDCAD rallied yesterday and consolidated the gains in a relatively quiet overnight session. The gains were due to hawkish comments from St Louis Fed President James Bullard accusing the Fed of being “behind the curve.”  Chicago Fed President Charles Evans said US rates should be “neutral” by year-end.

Canada’s Finance Minister Chrystia Freeland delivered a 304 page fantasy titled “A Plan to Grow Our Economy and Make Life More Affordable.”  If stripped of hyperbole, self-congratulation, and economic projections found in a hookah pipe, the document would be only two pages.  National Post columnist Terence Corcoran summed up the budget very succinctly.  He said, “Canada has been roaring backward since 2020, and Budget 2022 keeps economic and fiscal policy on the same track.”

In fairness, Canadian bank economists are far less critical.  TD starts off their analysis with “In bold fashion…”, CIBC says the Feds are fighting deficits with tax hikes rather than spending cuts, and Scotia bank points out that the budget doesn’t do anything to fight inflation, leaving that fight in the hands of the BoC.

USDCAD traders ignored the budget.

Canada added 72,600 new jobs in March which is impressive considering February’s 336,600 gain.  The unemployment rate fell 0.2% to 5.3%, which is the lowest rate on record going back to 1972,

USDCAD barely budged on the result which is sheer lunacy.  The employment data suggests the economy is percolating and with inflation elevated and expected to rise further, the Bank of Canada will adopt an aggressive monetary policy which may include more than one, 0.50% bump.

USDCAD technical outlook

The intraday USDCAD technicals are bullish while prices are above 1.2550, looking for a break of 1.2620 resistance to extend gains to 1.2690.  Failure to break the top suggests this weeks rally is just a correction. The daily chart suggest USDCAD is overbought with a move below 1.2550 targeting 1.2470.,

For today, USDCAD support is at 1.2550 and 1.2490.  Resistance is at 1.2620 and 1.2660.  Today’s Range 1.2510-1.2610

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

Fed hawks were squawking yesterday, and traders reacted in the absence of any fresh data.  Fed policymaker James Bullard said the fed funds rate needs to be 3.5% by year end, which is about 0.75%-1.0% higher than the dot-plot forecasts.  The comments lifted the US 10-year Treasury yield from yesterday’s low of 2.563% to 2.704% today.

Asian equity indexes closed with modest gains and the German Dax index is leading European bourses higher.

European traders have ignored reports that Russia bombed a Ukraine railway station and news EU added coal to its list of Russia sanctions.  DJIA and S&P 500 futures are a tad higher while gold is close to unchanged at $1933.00. 

EURUSD traded with a bearish bias in a 1.0849-1.0891 band.  Traders were unperturbed by banks like Goldman Sachs and Danske Bank predicting the first ECB rate hike would occur in September.  Instead the lack of Euro are economic data, the imposition of another round of Russia sanctions and reports Russia bombed a train station, weighed on prices.

GBPUSD dropped to 1.3016 from 1.3085 due to broad US dollar strength and positioning ahead of the weekend.

USDJPY rallied on the surge in the 10-year Treasury yield to 2.704% , while 10-year JGB yields are capped at 0.25%.  The technicals are bullish with the rally from March 7 intact while prices are above 123.30, looking for a test of major resistance at 125.00.

AUDUSD traders ignored the RBA Financial Strategic Review warning borrowers to prepare for higher rates and prices dropped to 0.7454 from 0.7491.

There are no to-tier US economic reports today.

Chart: US 10-year Treasury yield


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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3653 (Previous close 6.3659)

Shanghai Shenzhen CSI 300 rose 0.51% to 4,230.77

A spokesman from China’s Foreign Ministry says’ US Speaker of the House of Representatives Nancy Pelosi’s planned trip to Taiwan is “malicious provocation.:

Chinese Securities Journal reportedly writing about potential PBoC cut to RRR in Q2

Chart: China 1 month

Source: Saxo Bank