Image by DALL-E
November 16, 2023
- Post-CPI US Dollar retreat and stock market rally loses momentum.
- Biden/Xi Jinping dinner meeting ends… with dessert.
- US dollar recoups some losses, opens a tad higher.
FX at a Glance
USDCAD Snapshot: open 1.3700-04, overnight range 1.3677-1.3736, close 1.3682
USDCAD is directionless inside a 1.3650-1.3750 trading band, with Canada and US interest rate differentials supporting USDCAD. Some analysts expect that the Bank of Canada will cut rates as early as April 2024, although BoC speak is sure to push back against that notion. However, despite what the BoC says, monetary policy will be determined by the Fed, and the BoC will cut rates when Mr. Powell gives the nod.
Canadian consumers face significant sticker shock when they renew their mortgages, and that is something the BoC and government are keenly aware of, so they will be motivated to mitigate the damage.
USDCAD is also underpinned by the latest drop in oil prices. WTI fell from $79.37/b on Tuesday to $75.69 overnight, before climbing back to $76.60 in NY. The EIA reported that US crude inventories rose by 3.6 million barrels last week, which takes the sting out of IEA and OPEC claims of rising demand in the next few months.
The intraday technicals are mildly bullish above the 1.3660-1.3670 area and looking for a break above 1.3720 to extend gains to 1.3760. A downside break targets 1.3610.
Longer-term, the uptrend channel from the middle of September is intact and suggesting a 1.3640-1.3980 range. A break below the bottom of the channel sets the stage for deeper losses to the 1.3350-1.3360 zone.
For today, USDCAD support at 1.3670 and 1.3640. Resistance at 1.3740 and 1.3760. Today’s expected range is 1.3670-1.3640.
Chart: USDCAD daily
G-10 FX recap
Financial markets are choppy but like a person on a treadmill, they are not going anywhere. The post-CPI momentum has faded as more than a few analysts question the belief that the Fed will be cutting interest rates as soon as the May 1, 2024, meeting. That helped lift the US 10-year Treasury yield from yesterday’s low of 4.43% to 5.50% today and gave the greenback a bit of a bid.
So did comments from Fed officials. San Francisco Fed President Mary Daly said it was too soon to call time on the rate hike cycle and didn’t rule out another rate hike.
This morning’s weekly jobless claims (actual 231,000 vs forecast 220,000) and the Philadelphia Fed Manufacturing Survey data (actual -5.9 vs previous -9) were Fed-friendly in the sense that the economy is showing signs of slowing without elevating risks for a hard landing. It also knocked the US 10-yearTreasury yield down to 4.45% from $.51% pre-data.
No one expected much from the Biden and Jinping meeting in San Francisco yesterday, and they were not disappointed. Biden described the talks as “most constructive and productive,” although the most significant development was that they would talk again. Sleepy Joe was on his best diplomatic behavior until Mr. Jinping left. Then when a reporter asked him if he still thought the Chinese President was a dictator, Biden responded, “Well, look, he is. I mean, he’s a dictator in the sense that he’s a guy who runs a country that is a Communist country.” There is no proof that Xi Jinping retorted with “No won-ton soup for you.”
EURUSD bounced in a 1.0830-1.0861 range with price action traction broad US dollar sentiment in the absence of actionable eurozone data. EURUSD technicals are bullish above 1.0700, but prices need to break above 1.0900 to kick off another leg of the rally.
GBPUSD traded in a 1.2376-1.2425 range overnight. It traded steadily lower after peaking at 1.2505 on Tuesday; the downtrend is intact while below 1.2450. Bank of England policymaker Megan Greene responded to yesterday’s UK inflation data (CPI down to 4.8% y/y) as good news but said it was too early to consider cutting rates.
USDJPY climbed to 151.48 from 151.12 thanks to higher US Treasury yields. Traders ignored better than expected Japanese trade and Machinery orders data.
AUDUSD traded in a 0.6461-0.6522 range overnight. Prices got a short-lived boost after October employment rose more than expected (actual 55,000 vs. forecast 20,000), but the bulk of the gains were due to part-time hiring for the Australian referendum. AUDUSD is sitting at 0.6495 in NY trading.
There are plenty of Fed officials speaking today (John Williams, Christopher Waller, Lisa Cook, and Loretta Mester). Expect to hear some pushback against cutting Fed rates.
FX high, low, open
PBoC fix: today 7.1724, expected 7.2474, previous 7.1752.
Shanghai Shenzhen CSI 300 fell 0.97% to 3572.76.
Markets disappointed after Biden/Jinping meeting ended without any major progress while the steepest drop in 8 years for the home price index (-38.8%) weighed on stocks.
Chart: USDCNY (onshore) vs USDCNH (offshore) 3 months