April 1, 2024
- Most G-10 markets closed for Easter Monday.
- Markets pricing in Fed rate cut in June.
- US dollar opens soft following PCE report.
FX at a Glance
Source: IFXA/RP
USDCAD Snapshot: open 1.3527-31, overnight range 1.3515-1.3551, close 1.3539
USDCAD is consolidating its losses from Thursday, which were due to a mix of month and quarter-end portfolio rebalancing, US dollar sales, and better than expected January GDP results. The 0.6% rise in January, combined with Statistics Canada’s 0.4% estimate for February growth, has many economists upwardly revising their 2024 growth projections. If the trend continues, the Bank of Canada may not be very motivated to cut interest rates before September.
But that is assuming that the imposition of a 23% increase in Canada’s carbon tax, effective today, which is a 400% increase from the 2019 level, doesn’t derail growth or worse, ignite another bout of inflation. It is also a slap in the face to Bank of Canada officials who last week were bemoaning Canada’s poor productivity compared to its peers. Nothing crushes productivity like tax increases.
The Bank of Canada Business Outlook Survey is released today and is expected to show a softening of inflation expectations.
USDCAD downside is being driven by US interest rate expectations. Friday’s US PCE price index data has traders pricing in a June rate hike.
USD/CAD Technicals
The intraday USDCAD technicals flipped to bearish on Friday with the post-PCE break below 1.3540 which also served to reinforce resistance in the 1.3605-15 area. A break below 1.3510 suggests further losses to the 1.3440-1.32460 support zone.
Longer term, the uptrend line from the end of December/beginning of January comes into play at 1.3480. The 100 and 200 day moving averages converge in the 1.3495 and 1.3485 areas, respectively, which will also be support.
For today, USDCAD support is at 1.3510and 1.3480. Resistance is at 1.3580 and 1.3610. Today’s range is 1.3480-1.3580.
Chart: USDCAD daily
Source:Investing.com
Powell Unimpressed with PCE
Traders were as excited about Friday’s PCE data as punters who managed to pick the NCAA final four. Fed Chair Powell’s March madness pool picks are unknown, but he was not impressed with Friday’s inflation data. The results did not change his view that the Fed need not be in a rush to cut rates. He said, “The fact that the US economy is growing at such a solid pace, the fact that the labor market is still very, very strong, gives us the chance to just be a little more confident about inflation coming down before we take the important step of cutting rates.” Traders only heard “cutting rates” and expect the first move in June.
US Manufacturing PMI is expected to improve to 48.4 from 47.8 in February.
The US 10-year Treasury yield ticked up to 4.24% from 4.20% in early NY and that gain has given the greenback a bit of a bid.
EURUSD
EURUSD traded in a 1.0779-1.0799 range with little action due to most of the Eurozone being closed for Easter Monday. EURUSD has been trading defensively for the past 10 days, and dovish ECB policymakers’ comments are also weighing on the currency pair. Austria’s Central Bank Governor Robert Holzmann warned that the ECB could cut rates ahead of the US, partly because the EU economy is growing more slowly than the US.
GBPUSD
GBPUSD traded with a modest bid in a 1.2609-1.2643 range. The UK switched to daylight saving time, and UK markets were closed.
USDJPY
USDJPY traded narrowly in a 151.22-151.43 range. Japanese economic data presented a mixed bag. Industrial production fell 0.1% in February, the unemployment rate rose to 2.6% from 2.4%, and Retail trade rose 4.6% y/y in February compared to 2.1% in January. USDJPY upside is limited by BoJ intervention fears.
AUDUSD and NZDUSD
AUDUSD consolidated its post-PCE gains in a quiet 0.6514-0.6539 range as markets were closed since Friday. Prices were supported by the improved Chinese PMI reports.
NZDUSD drifted in a 0.5974-0.5993 range. NZ markets were also closed for the extended Easter long weekend.
USDMXN
USDMXN traded quietly in a 16.5511-16.5967 range. Mexican markets have been closed since Thursday for Easter. Traders are looking ahead to Mexican Consumer Confidence data due Thursday.
The US data calendar is empty.
FX high, low, open (as of 6:00 am ET)
Source: Investing.com
China Snapshot
PBoC fix: 7.0938.
Shanghai Shenzhen CSI 300 rose 1.64% to 3595.65.
China’s National Bureau of Statistics claims manufacturing PMI was 50.8 in March compared to 49.1. Non-Manufacturing PMI was 53 compared to 51.4 in February. Caixin Manufacturing was 51.1 compared to 50.9 in February. The gains were reportedly driven by rising new orders as business confidence hit an 11 month peak.
Chart: USDCNY and USDCNH 4 hour
Source: Investing.com
