March 5, 2024

• Atlanta Fed President Bostic’s comments spook traders.
• Thursday’s ECB meeting overshadows Eurozone PMI data.
• US dollar is modestly bid in a cautious risk environment.

FX at a Glance

Source: IFXA/RP

USDCAD Snapshot: open 1.3580-84, overnight range 1.3571-1.3606, close 1.3575

USDCAD traded firmer after Atlanta Fed President Raphel Bostic’s comments sparked a round of negative risk sentiment which gave the US dollar a bid.  Traders are awaiting the results of the Bank of Canada monetary policy meeting tomorrow.  The BoC is likely to echo comments from other central bank officials and claim that upside inflation risks necessitate a wait and see approach to cutting rates.

WTI oil prices dropped from $$78.87/b to $77.92 overnight.  The updated Chinese economic targets suggest oil demand would be soft which overshadowed the weekend announcement that Opec would extend production cuts.

 The Canadian economic calendar is empty.

USDCAD Technicals

The intraday technicals are bullish while prices are trading above 1.3440 (hourly chart), looking for a break above 1.3630 to extend gains to 1.3710. A break below 1.3440 would shift the focus to the 1.3660 area.

The 2024 USDCAD uptrend channel is intact between 1.3480 and 1.3750.  The move above 1.3550 ( 50% Fibonacci retracement of 1.3190-1.3903 range between November and December) suggests further gains to 1.3630 (61.8% Fibonacci level) then 1.3748.

For today, USDCAD support is at 1.3540 and 1.3510. Resistance is at 1.3620 and 1.3650. Today’s range is 1.3550-1.3630

Chart: USDCAD daily

Source: Daily FX

G-10 FX recap

The Fed is in no hurry to cut rates. Officials have been singing that tune since the conclusion of the January 31 FOMC meeting. Atlanta Fed President Raphael Bostic hammered the point home yesterday when he paraphrased former Fed Chair Alan Greenspan and warned of “pent-up exuberance.” He is referring to the risk of a burst of new demand from the first rate cut that “could reverse the progress toward rebalancing supply and demand.”

Those comments helped to underpin the US dollar and take the shine off of Wall Street. The trend continued in Asia where both the Nikkei 225 index and Australia’s ASX 200 index closed in negative territory. European bourses are flat, and S&P 500 futures are down 0.30%.

EURUSD drifted in a 1.0811-1.0858 band. Prices are being weighed down because of Bostic’s comments and concerns of a dovish tilt by the ECB on Thursday. However, the Eurozone Services PMI inched further into expansion territory, which provided a bit of support. HCOB Eurozone Composite PMI Output Index at 49.2 (Jan: 47.9). 8-month high. HCOB Eurozone Services PMI Business Activity Index at 50.2 (Jan: 48.4). 7-month high.

GBPUSD traded in a 1.2671-1.2695 range. The UK Services PMI was 53.8 compared to 54.3, but the results had little impact on trading. The Economics Director at S&P Global Markets described the data as adding “to signs that the UK economy has turned a corner after entering a technical recession during the second half of 2023.” Traders are also cautious ahead of the budget announcement tomorrow.

USDJPY was uninspired and traded in a 150.34-150.63 range despite higher than expected Tokyo Consumer Price Index data. (actual 2.6% y/y vs 1.8% in January) prompting Finance Vice Minister Masato Kanada to say, “we must brace for a higher interest rate environment.”

AUDUSD traded in a 0.6478-0.6513 range, with prices sitting at 0.6493 in NY. Sentiment is bearish due to the dovish tilt by the RBA, and if tomorrow’s Q4 GDP (forecast 0.3% q/q, vs 0.2% q/q previously) is weaker than expected, AUDUSD will target 0.6400.

USDMXN consolidated yesterday’s losses in a 16.9517-16.9900 range. Traders are awaiting Powell’s testimony on Wednesday. The intraday USDMXN technicals are bearish below 17.0020 and looking to test 16.9315.

Today’s US data includes ISM Services PMI (forecast 53, previous 53.4) and January Factory orders (-2.9% m/m, December 0.2%).

FX high, low, open (as of 6:00 am ET)

Source: Investing.com

China Snapshot

PBoC fix: 7.1020, expected 7.1906, previous 7.1059.                                                                                                    Shanghai Shenzhen CSI 300 rose 0.70% to 3565.51.

Caixin Services PMI 52.6 (forecast 52.9, previous 52.7)

China hikes defence (offence) spending 7.2% to $231.4 billion to defend the country from invasion threats from Taiwan, Vietnam, Philippines, Malaysia, Indonesia, and Brunei.

Shanghai Shenzhen CSI 300 rose 0.70% to 3565.51.

Source: Bloomberg

Chart: USDCNY and USDCNH daily

Source: Bloomberg