May 7, 2024
- RBA leaves rates unchanged and turns mildly doveish.
- Equity rebound underpins positive risk sentiment.
- US dollar squeezes out gains against majors-MXN outperforms.
FX at a Glance
Source: IFXA/RP
USDCAD Snapshot: open 1.3684, overnight range 1.3660-1.3692, close 1.3666
USDCAD was rangebound overnight with traders content to take direction from US dollar sentiment. USDCAD downside is hampered by widening CAD/US 10 year interest rate spreads that favour the US dollar and by slumping oil prices. There isn’t any Canadian data of note until Friday’s employment report.
USDCAD is supported by expectations that the BoC will cut rates as early as June or July while a Fed cut may not occur until November.
WTI oil prices are trading in at the bottom of the overnight 78.11-79.02 range. Talk of a ceasefire in Gaza and expectations of higher US crude inventories are weighing on demand.
USDCAD Technicals
The intraday USDCAD technicals are modestly bullish above 1.3660, looking for a break above 1.3710 to extend gains to 1.3770. A break below 1.3660 targets 1.3610.
Longer term, the attached chart shows USDCAD approaching the intersection of an ascending trend line, which has historically acted as support, and the lower boundary of a short-term descending channel. The MACD indicator shows bearish momentum, with the MACD line beneath the signal line. A break below 1.3590 targets 1.3460. A bounce off this support shifts the bias to 1.3800.
For today USDCAD support is at 1.3650 and 1.3610. Resistance is at 1.3710 and 1.3750. Today’s range is 1.3640-1.3720.
Chart: USDCAD 1 day
Source: DailyFX
Not Giving Peace a Chance
On Monday, Iran’s embattled terrorist group Hamas announced it agreed to a ceasefire proposal with Israel. It was a blatant attempt to get the Western media to portray them as peace-loving activists being bullied by the IDF. It worked. But it didn’t stop Israeli tanks from rolling into the Hamas enclave of Rafah. Nevertheless, global markets are in risk-seeking mode.
Rate Cuts like a Knife
When the Fed cuts rates, and by how much, continues to be the main focus of traders. 2024 is the Year of the Cut according to the March FOMC Summary of Rate Projections and by recent comments by Fed Chair Powell, NY Fed President John Williams, and Richmond Fed President Thomas Barkin. Yesterday Mr. Barkin said, “I am optimistic that today’s restrictive level of rates can take the edge off demand in order to bring inflation back to our target. The full impact of higher rates is yet to come.”
Equity Optimists
Asian equity indexes closed with gains. Japan’s Nikkei 225 index rallied 1.57% while Australia’s ASX 200 jumped 1.44%. European bourses are higher across the board led by a 1.03% gain in the UK FTSE 100. S&P 500 futures rates are less optimistic, and prices are close to unchanged. The US 10-year Treasury yield is steady at 4.461%.
EURUSD
EURUSD is rangebound inside a 1.0754-1.0777 band having lost upward momentum from last Friday’s weaker than expected nonfarm payrolls data. Positive German trade data was offset by weaker Factory orders but prices were supported by higher stock prices and slightly improved risk sentiment.
GBPUSD
GBPUSD is close to the bottom of its overnight 1.2532-1.2572 range. Expectations for a somewhat dovish shift in the Bank of England monetary policy outlook at Thursday’s meeting are offset by fears the BoE will indicate that it is still premature to start easing policy. The odds for a June rate cut are only 30%.
USDJPY
USDJPY was choppy in a 153.87-154.65 range. Intervention fears drove USDJPY to its session low after BoJ Governor Kazuo Ueda said, following a meeting with the Prime Minister, “I confirmed that the Bank of Japan will closely monitor the recent yen’s weakness in conducting policy.” Traders quickly realized it was the “same old song and dance,” and boosted USDJPY to 154.57 in NY.
AUDUSD and NZDUSD
AUDUSD retreated from 0.6646 to 0.6586 after the RBA failed to sound hawkish. Policymakers left interest rates unchanged at 4.35%, tweaked its short-term inflation forecast higher while slightly lowering its growth forecast. Governor Michelle Bulloch said, “Right now we believe that rates are at the right level to achieve this, but there are risks and at this stage, the board is not ruling anything in or out.” Traders heard “the next rate move is lower” and sold AUDUSD. Prices have recovered to 0.6600 in early NY.
NZDUSD was steady and drifted in a 0.6000-0.6025 range supported by renewed Fed rate cut hopes.
USDMXN
USDMXN drifted lower, falling from 16.9010 to 16.8558 on the back of broad US dollar weakness. Traders are biding their time ahead of Thursday’s inflation report and the Banxico meeting. Consumer confidence was unchanged at 47.3.
FX high, low, open (as of 6:00 am ET)
Source: Investing.com
China Snapshot
PBoC fix: 7.1002 vs exp. 7.2143 (prev. 7.0994).
Shanghai Shenzhen CSI 300 rose 0.3% to 3659.01.
Chart: USDCNY and USDCNH
Source: Investing.com
