Photo: clipart library

March 6, 2023

  • RBA hikes 25 bps opens door to pausing.
  • Bank of Canada will leave monetary policy unchanged.
  • US dollar opens mixed from yesterday morning but gains overnight.

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3625-29, overnight range 1.3602-1.3646, close 1.3602

USDCAD traded narrowly ahead of the BoC monetary policy decision and Fed Chair Powell’s congressional testimony. Mr Powell’s comments pose the biggest risk to USDCAD. Traders hope to get some clues as to the size of the March 22 rate hike.  Most expect a 25 bps bump but a series of robust economic data suggests a 50 bp is a possibility.

Meanwhile the BoC is universally expected to leave rates unchanged, especially since tomorrow’s meeting doesn’t warrant a press conference or updated forecasts. The BoC believes inflation is on a downward path and will be close to target this year.  Consumers beg to differ as prices remain elevated.

Oil prices helped to cap USDCAD upside. WTI oil rallied from $78.35 yesterday to $80.91 in early Asia trading, then consolidated in a $79.85-$80.75 until the NY open. Prices are supported by the latest Saudi price increase for Asian clients.

There is no Canadian or US data of note.

USDCAD Technical Outlook

The intraday USDCAD technicals are unchanged from yesterday.  Prices are bullish above 1.3570, looking for a break above resistance in the 1.3680-1.3710 zone to extend gains to 1.3860.  A break below 1.3570 targets 1.3540 then 1.3510.

The weekly USDCAD chart is bullish following the break of the downtrend line from October 2022 which has hung a target on the 1.4000 area.

For today, USDCAD support is at 1.3570 and 1.3530.  Resistance is at 1.3660 and 1.3710.

Today’s range 1.3570-1.3670

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

The US dollar drifted higher in a quiet overnight session as traders were content to await the outcome of Fed Chair Jerome Powell’s testimony to Congress which starts at 10: 00 am ET. He is expected to tell policymakers that US rates will need to rise higher than most people expect in order to tame inflation.

Chinese officials are not doing anything to dial back geopolitical tensions, especially after studying data from “weather balloons.” President Xi Jinping accused western countries, led by the United States, of implementing “all-round containment, encirclement and suppression against us, bringing unprecedentedly severe challenges to our country’s development.”

China’s foreign minister Qin Gang warned “If the United States does not hit the brakes but continues to speed down the wrong path, no amount of guardrails can prevent derailing and there will surely be conflict and confrontation.”

Nevertheless, traders are more worried about Jay Powell’s comments on interest rates then WW lll.

EURUSD traded in a 1.0655-1.0694 range with prices retreating into the NY open.  The single currency continues to be underpinned by hawkish comments from ECB officials yesterday.  Austrian Central Bank President Robert Holzmann argued for 50 bp rate hikes at the next four meetings.  German factory orders rose 1.0% m/m in January.

GBPUSD is just off the bottom of its 1.1978-1.2063 partly due to comments from BoE policymaker Catherine Mann.  She warned that GBPUSD could fall further if the hawkish tone from the Fed is not already priced into the currency. The UK housing market is resilient. Halifax House prices rose 2.1% in the 3 months ending in February (forecast 2.0%).

USDJPY sank then rallied in a 135.55-136.25 range, coinciding with the US 10-year Treasury yield rising from 3.907% to 3.979%, then down to 3.93% in NY.

AUDUSD traded negatively in a 0.6661-0.6747 range following what traders determined to be a “dovish” rate hike. 

The RBA raised the OCR rate by 25 bps to 3.60%, tweaked the statement to have a dovish bias.  For starters, the RBA concluded that inflation has peaked in Australia.  The statement changed from “expects that further increases in interest rates…” to In assessing when and how much further interest rates need to increase…”  Analysts still expect further rate hikes, but now believe the terminal rate is close.

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

Source: Saxo Bank

China Snapshot

Bank of China Fix:  6.9156, Previous: 6.8951

Shanghai Shenzhen CSI 300 fell 1.46% to 4048.85.

February Trade Balance $116.8 billion (forecast $81.88 b, January $78.018 b)

Exports fell 6.8% y/y (forecast -9.4%) while imports fell 10.2% y/y (forecast -5.5%).

Chart: USDCNY 1 month

Source: Bloomberg