Picture: Needpix.com

November 20, 2020

USDCAD open (6:00 am ET) 1.3061-65,  Overnight Range 1.3050-1.3087

  • Moody’s Re-affirms Canada’s AAA rating-Huh?
  • GBPUSD bid on Brexit deal talk
  • Canada Retail Sale rise 1.1%-Forecast 0.2%

FX Ranges at a Glance 

Source: IFXA Ltd/RP

FX Recap and Outlook:  Canada headline retail sales rosefor the fifth consecutive month as did core retail sales. The USDCAD reaction was underwhelming.  The increasing number of COVID-19 cases in many parts of the country has led to enhanced restrictions which means Retail Sales data is only going to get worse in the next few months.  Instead, the domestic currency is following the lead of the antipodean currencies, and a jump in commodity prices has given them a boost.  USDCAD is also being weighed down (marginally) by firmer oil prices.  Opec is rumoured to be planning an extension to production cuts which is lifting oil prices.

The US dollar closed Thursday with losses across the board, but it managed to claw some of them back by today’s NY open.  FX markets were choppy, but the major currencies remain inside their recent trading bands.

Moody’s re-affirmed Canada’s debt at AAA, and maintained the stable outlook. They justified their action saying:

“1) Canada’s high economic strength and a governance framework fostering very strong policy effectiveness,  affording its credit profile a very high degree of resilience to shocks, including the current coronavirus pandemic.

(2) High debt affordability, supported by historically low interest rates, mitigates the impact of this year’s sharp rise in public sector indebtedness on the country’s fiscal strength.

They also noted “According to the rating agency’s forecast, the general government debt burden will rise to about 104% of GDP in 2020, up from 79% in 2019, and remain around that level until gradually declining over the medium term as the government advances fiscal consolidation measures. 

The last line alone warrants a failing grade for Moody’s The current government is the one that says’ Budgets balance themselves, which begets the question “what government will advance fiscal consolidation measures?

Finances are not all sunshine and unicorns south of the border, either.

Treasury Secretary Stephen Mnuchin, soon to be ex-Treasury Secretary, is allowing emergency COVID-19 Federal Reserve lending programs to expire  December 31, and wants unspent funds returned.  Mr Powell earlier said he didn’t think it was prudent to end the programs.  Mr Powell’s is Fed chair until 2027.  Mnuchin is toast in January. Someone is playing “silly buggers.”

GBPUSD remains firm in the face of rising optimism for an EU/UK trade deal announcement as early as Monday.  The GBPUSD bid seems to be at odds with reports that fishing rights,  competition guarantees, and the dispute resolution mechanism are still issues.  GBPUSD traded in a 1.3248-1.3291 range.  UK Retail Sales rose 1.2% in October.  Analysts suggest not to expect a repeat in November thanks to second-wave COVID-19 restrictions.

EURUSD  clawed out gains, rising from 1.1873 at the closed to 1.1890 in Asia.  That was it and prices traded in a 1.1852-90 range into NY. ECB official Luis de Guindos helped cap gains when he said  that Q4 GDP might be negative.

USDJPY  traded narrowly in a 103.75-103.90 range.  Prices were weighed down by falling 10-year US Treasury yields, and bearish technicals.   USDJPY support is seen at 103.70 and 103.10.  Resistance at 104.70

AUDUSD and NZDUSD squeezed out gains, on the back of broad US dollar weakness, but both currency pairs are looking a tad overbought.  AUDUSD got an added lift from a 1.6% jump in October retail sales which was a vast improvement over Septembers’ 1.2% decline.   The unwinding of some coronavirus restrictions accounted for a large part of the increase.

There are no US economic releases of note.  Next week is Thanksgiving week in the US, meaning trading volumes will shrink.

USDCAD Technicals:   The intraday USDCAD technicals are bearish below 1.3080, looking for a break below 1.3040 to extend losses to 1.3010 and then 1.2950.  The long term technicals are bearish below 1.3220.  For today, USDCAD support is in the 1.3020-40 area, and then 1.2970.  Resistance is at 1.3080 and 1.3140.  Today’s Range 1.3010-1.3090

Chart: USDCAD 1 hour

 Source:  Saxo Bank

FX open (6:00 am EDT) High, Low, and previous close

Source:  Saxo Bank