April 5, 2023

  • RBNZ surprises with a 50 bp rate hike-indicates more hikes to come.
  • US 10-year Treasury yield is 3.363%, consolidating Tuesday losses a
  • US dollar opens mixed-AUD underperforms while JPY outperforms.

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3473-77, overnight range 1.3428-1.3482, close 1.3444

USDCAD was unable to extend losses below key support in the 1.3380-1.3410 area yesterday and didn’t see much benefit from broad-US dollar weakness when traders downgraded the odds for a Fed rate hike on May 3.

USDCAD continues to be weighed down by bearish short term technicals, firmer oil prices, and expectations of narrower CAD/US interest rate spreads.

On the other hand, rising recession risks in the US suggest slower Canadian growth due to the trade relationship between the two countries.

WTI oil prices are consolidating the gains from Opec’s surprise production cut, but the rally has stalled below resistance in the $82.40/barrel range.  The gap between Friday’s close and Monday’s opening screams to be filled, which suggests some downside risks.  Those risks are exacerbated by concerns about a US recession.

Canada’s trade surplus narrowed to $422.0 million compared to $1.92 billion in January.

USDCAD Technical Outlook

 The intraday technicals flipped to bullish with the move above 1.3450, the two-week downtrend line. The rally may just be a correction which will be confirmed if prices stay below 1.3510. Further gains above 1.3560 would suggest a short-term bottom is in place and target 1.3660.

Longer term, USDCAD is supported by the 200-day moving average at 1.3380 and the

For today, USDCAD support is at 1.3430 and 1.3410.  Resistance is at 1.3490 and 1.3530.

Today’s range 1.3420-1.3520

Chart: USDCAD4 hour

Source: Saxo Bank

G-10 FX recap and outlook

American’s are fixated on Donald Trump’s legal woes while those living in Manhattan are just fuming about the traffic chaos from the ex-president’s motorcade.  Meanwhile, Republican’s long for the day when Bill Clinton was the victim and Monica Lewinsky was in the role of Stormy Daniels.

Traders are busily downgrading their expectations for Fed rate hikes.  Yesterday’s 632,000 drop in Job Openings in February was the first time vacancies fell below 10 million since May 2021. Markets reacted as if the data confirmed that labour market constraints were loosening, indicating a US economic slowdown.

The odds that the Fed leaves rates unchanged on May 3 are 53%. (CME Fedwatch Tool)

Those odd may have risen thanks to today’s ADP employment report, which was weaker than expected.  The US only added 145,000 jobs in March compared to the forecast for a gain of 200,000.

EURUSD traded in a 1.0942-1.0969 range with traders content to await today’s US ISM Services data for further signs that the US economy is weakening and thereby lowering the odds of a Fed rate hike.  Eurozone data was mixed. Better than expected German factory orders reports were offset by softer Eurozone Composite and Services PMI data. Failure to break above resistance in the 1.1040 area may lead to a retreat to 1.0840.

 GBPUSD surged on the back of broad-based US dollar selling following the weaker than expected JOLTS job openings data on Tuesday and hung on to the gains overnight, trading in a 1.2463-1.2513 range. GBPUSD is also supported by improving growth prospects for the UK.

USDJPY consolidated yesterday’s losses in a 131.24-131.83 range. Prices dropped from 133.16 Tuesday to close at 131.72 after traders were spooked by the surprise drop in JOLTS job openings suggested lower growth. The drop in the US 10-year Treasury yield to 3.335% from 3.48% didn’t help.

AUDUSD peaked in Asia at 0.6779 then had plunged to 0.6681 by the time NY opened, weighed down by AUDNZD selling pressure.  Traders fear Australian interest rates have peaked after the RBA left rates unchanged while New Zealand rates are still going higher.   RBA Governor Philip Lowe pushed back against that notion saying, “The decision to hold rates steady this month does not imply that interest rate increases are over. Indeed, the board expects that some further tightening of monetary policy may well be needed to return inflation to target within a reasonable time frame.”

NZDUSD soared from 0.6306 to 0.6379 following a surprise 50 bps rate hike by the Reserve Bank of New Zealand. The RBNZ increased its Overnight Cash Rate (OCR) to 5.25% from 4.75% stating that “Inflation is still too high and persistent, and employment is beyond its maximum sustainable level.”

NZDUSD gave back all the gains in Europe and is trading at 0.6308 in NY.

Today’s US data includes ISM Services PMI.

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

Source: Saxo Bank

China Snapshot

Chinese markets are closed Wednesday for Tomb Sweeping Day

Bank of China Fix:  6.8699, Previous: 6.8805

Shanghai Shenzhen CSI 300 rose 0.31% to 4103.10.

Chinese markets are closed Wednesday for Tomb Sweeping Day

Chart: USDCNY 1 month

Source: Bloomberg