June 6, 2022

  • China easing COVID restrictions, Caixin Services PMI data improve sentiment
  • European markets are quiet due to Wit Holiday’s
  • US dollar opens with gains, but well below Friday’s post NFP peak

FX change at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2561-65, overnight range 1.2552-1.2600, close 1.2594,

USDCAD is consolidating last week’s gains and trading with a bearish bias. Global risk sentiment improved following reports China continued to ease covid restrictions in Beijing and other areas and after China Services PMI data improved.

USDCAD is also weighed down by widening US/CAD interest rate differentials in Canada’s favor and due to firm oil prices.

WTI oil traded sideways in a $118.99-$120.87/barrel range overnight, underpinned by hopes of increased demand as China’s economy rebounds and ongoing supply concerns from sanctions on Russia. Gas prices at $5.07/gallon in Washington, $6.21 in LA and $4,87 in NYC have forced the US State Department to revisit sanctions/embargos etc on enemies. They are allowing some Venezuelan oil to ship to Europe starting next month and there are reports that the Americans will turn a blind eye to increased shipments from Iran.

Even with the worlds second largest proven oil reserves, Canadian are getting hosed at the pump. The American Automobile Association reports the average price of gas in the US is $4.865 or CAD$ 1.61 per litre. In Vancouver, the gas price is 2.209/litre.

US politicians are outraged at the high prices and are taking steps to mitigate prices at the pumps. Canadian politicians claim they cannot offer motorists any relief, while watching the fuel tax, carbon tax and HST tax cash piling up.

There are no Canadian economic reports today.

USDCAD technical outlook

The USDCAD technicals are bearish while prices are below 1.2620, looking for a break of support in the 1.2540-50 zone to extend losses to 1.2500, then 1.2460.  A break above 1.2620 suggests additional 1.2550-1.2750 consolidation.

For today, USDCAD support is at 1.2540 and 1.2490. Resistance is at 1.2590 and 1.2620.  Today’s Range 1.2510-1.2590

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

The US dollar is on the defensive as traders re-evaluate concerns following Friday’s nonfarm payrolls report. The US added jobs faster than expected, with NFP rising 390,000 (forecast 325,000) while the April jobs were revised 8,000 higher. That may be a mistake as the Fed is more focused on inflation and employment numbers are less important, for now.

Traders turned their attention to China, where improving Services PMI data and a further easing of Covid restrictions gave hope to renewed global growth. Even so, many European centres were closed for the Wit holiday, which suggests moves may be exaggerated due to poor liquidity.

Geopolitical risk remains elevated. Russian President Putin is scared that Ukraine will receive advanced Western military equipment, so he threatened attacks on “previously untargeted sites.”

EURUSD traded in  1.0711-1.0751 band overnight,  then settled dropped to the bottom in NY trading. The single currency is supported ahead of Thursday’s ECB meeting. Policymakers have made a lot of noise about hiking rates after QE ends, which won’t happen until July. It is hard to see EURUSD rallying much further, especially with the ongoing Russia and Ukraine war.

GBPUSD rallied from 1.2479-1.2576 range.   UK markets reopened following the Queen’s Jubilee long weekend which proved no country does pomp and pageantry better.

Prime Minister Boris Johnson didn’t find a marmalade sandwich in his handbag but rather a notice of eviction. Disgruntled Conservative MP’s are holding a confidence vote today, hoping to kick the “party animal” to the curb. Boris is expected to survive.

USDJPY is comfortably above 130.00, after trading in a 130.44-130.99 range overnight supported by rising US Treasury yields and dovish comments from BoJ Governor Kuroda. He said that Japan was not in a situation that warranted tighter monetary policy.

AUDUSD is bid, rising from 0.7189-0.7230 range ahead of an expected hawkish monetary policy statement following a 0.25% RBA rate hike on Tuesday. 

The are no US economic reports of note today.

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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.691, Previous 6.7095

Shanghai Shenzhen CSI 300 rose 1.87% to 4,166.09, Previous close 4,089.57

Caixin May Service PMI 41.4, April 36.2

Chart: USDCNY 1 month

Source: Yahoo Finance