April 19, 2022

  • Fed’s Bullard musing about 0.75% rate hike lifts Treasury yields
  • Offensive Russia kicks off new offensive, unnerving European markets
  • US dollar modestly lower, JPY underperforms

FX change at a glance: 24 hours

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2594-98, overnight range 1.2570-1.2624, previous close 1.2610

USDCAD retreated in Asia, found a bottom at 1.2570 in Europe and extended gains in NY trading, coinciding with WTI oil prices sliding below their overnight low.

The selling pressure was due to rising WTI oil prices which touched $109.68/barrel in NY yesterday, and consolidated gains in a $107.30-$108.89/b in Asia before sliding to $105.84/b in Europe.  Oil prices are underpinned by ongoing supply disruptions in Libya that have taken 300,000 b/pd off the market in addition to Russian production concerns. Prices would be a lot higher without a Covid outbreak in China.  The intraday WTI technicals are bullish above $103.00/b.

Rising commodity prices, and rate hike talks for the antipodean currencies, also undermined USDCAD.  Traders are also looking ahead to Wednesday’s inflation report.  Canada CP is expected at 5.0% y/y and a higher than expected result will remind traders that the BoC is likely to hike rates 0.50% at the June 1 meeting.

For today, price action is likely to be messy around the 10:00am NY option expiry window as 1.1 billion of 1.2590-1.2600 strikes mature.

Canada Housing starts were 246,200 in March compared to 250,200 in February. CMHC said “On a trend and monthly SAAR basis, the level of housing starts activity in Canada remains historically high, hovering above 200,000 units since June 2020.”

USDCAD technical outlook  

The intraday USDCAD technicals flipped to bearish with the move below 1.2590 targeting a test of 1.2540 and if broken, a drop to 1.2440. A break above 1.2660 would negate the downside and lead to more 1.2550-1.2850 consolidation.

For today, USDCAD support is at 1.2560 and 1.2490.  Resistance is at 1.2640 and 1.2680.  Today’s Range 1.2570-1.2640

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

The Easter weekend holidays are history, and markets have returned to the 2022 version of normal.

Traders are skittish after Russia kicked off a new offensive, and resident Fed hawk, St Louis Fed President James Bullard, saying rates should rise to 3.5% by year end.  (The dot-plot forecast is for rates to beak at 2.5%).  He made the remarks on Monday, but they reverberated in the overnight session.

The US 10-year Treasury yield jumped from 2.818% yesterday morning to 2.901% in NY trading.

EURUSD could not get any upside traction and traded with a negative bias in a 1.0762-1.0814 range.  Prices are weighed down by widening US and ECB interest rate differentials, and EU recession concerns due to the Russian aggression.  The EURUSD technicals are bearish below 1.0840.

GBPUSD traded in a 1.2990-1.3039 range.  The currency continues to suffer from fears that US interest rates will rise faster than those in the UK.  The intraday technicals are bearish below 1.3050, looking for a break of 1.2950 to extend losses to 1.2900.

USDJPY soared to a twenty-year peak of 128.45 on the back sharply widening US/Japan interest rate differentials.  Once again Japan’s Finance Minister expressed concern, saying that the merits of a weaker yen are overshadowed by the demerits.  He didn’t say anything about the Bank of Japan’s policy of capping 10-year JGP yields at 0.25%, which is behind the USDJPY strength.

AUDUSD rallied from 0.7347 to 0.7399 following the release of the RBA minutes from April 1.  The minutes suggested that higher inflation and wage costs would force the RBA to raise rates as early as June.

NZDUSD climbed from 0.6722 to 0.6762 due to speculation that the RBNZ would hike interest rates by 0.50% in May.

US housing starts and building permits data for March were a tad higher than expected.

Chart: EURUSD 4 hour

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 6.3720 (Previous Fix 6.3763

Shanghai Shenzhen CSI 300 fell 0.76% to 4,134.90

Analysts expect RRR to be cut on Wednesday due to slowing growth.

Chinese officials continue to micro-manage the economy.  They outlined 23 steps they hope will provide support to Covid-hit industries.

Chart: China hourly, 1 month

Source: Yahoo finance