March 21, 2023
- Canadian inflation cools
- Traders pricing in Fed rate cuts by Q4 2023
- US dollar opens defensively except against AUD
FX at a glance
Source: IFXA Ltd/RP
USDCAD Snapshot: open 1.3666-70, overnight range 1.3656-1.3697, close 1.3664
Canada headline and core inflation readings are a tad softer than anticipated. Core-CPI rose 0.5% m/m, a tick lower than the 0.6% expected but still above the 0.3% rise in January. Headline CPI was lower than expected at 5.2% y/y (forecast 5.4%, previous, 5.9%) while CORE-CPI was 4.7% y/y (previous 5.0%).
The results reinforce the notion that the Bank of Canada will leave rates unchanged at its April 12 meeting.
USDCAD barely budged on the news as traders are focused on global and US banking risks. Swiss National Bank and UBS dealt with the Credit Suisse disaster while JP Morgan Chase President is leading the charge to rescue First Republic Bank.
Market activity is likely to be understated ahead of tomorrows FOMC meeting.
USDCAD Technical Outlook
The intraday USDCAD technicals are bearish. The currency pair chewed through support in the 1.366-80 area yesterday but the lack of follow-through selling led to prices regrouping in the 1.3700 area for another move lower.
Fibonacci Retracement analysis of the February 14 low and the March 10 peak projects a test of 1.3490 on a decisive move below 1.3630.
For today, USDCAD support is at 1.3650 and 1.3620. Resistance is at 1.3690 and 1.3730.
Today’s range 1.3620-1.3690
Chart: USDCAD daily
Source: Saxo Bank
G-10 FX recap and outlook
Another one bites the dust-financial crisis that is. Optimistic traders are assuming that JPM boss Jamie Dimon and friends will cure whatever ails First Republic Bank and that the global financial scare will lead to Fed rate cuts as early as September.
To that end, European equity indexes have powered higher. The UK FTSE 100 is up 1.29%, while the German Dax and French CAD C 40 index have gained 1.21% (as of 6:30 am EDT. S&P 500 futures have risen 0.60%, even though the US 10-year Treasury yield ticked higher, rising from 3.477% at yesterdays close to 3.537% today.
European financial concerns have not disappeared like the value of AT-1 Credit Suisse bonds. Bonds are supposed to rank higher than shareholders, but the Swiss National Bank tossed that standard out the window. However, ECB EU and UK bank regulators denied that was the case, saying junior credit should only lose after equity holders have been wiped out. (At least until the next Bank crisis causes them to rethink that strategy)
Donnie Trump, Donnie Trump whatcha gonna do? Whatcha gonna do when they come for you? The former president is reportedly going to get arrested today, and the fall-out from his supporters may put a lid on positive risk sentiment.
EURUSD rallied steadily rising from 1.0705 to 1.0759 in NY, supported by the improved risk tone. Traders completely ignored weak ZEW Survey results from Germany and the Eurozone. Prices continue to be supported by comments from ECB President Christine Lagarde that rates need to rise to ensure price stability.
GBPUSD traded in a 1.2231-1.2281 range, underpinned by the positive risk sentiment tone and expectations for the Bank of England to boost rates by 25 bps, Thursday. The short-term GBPOUSD technicals are bullish after the break above 1.2200 yesterday set the stage for a test of resistance at 1.2450.
USDJPY climbed from 131.04 to 132.43 due to the rebound in the US 10-year Treasury yield. Trading was lighter than usual as Japan was closed for a holiday. Japanese Prime Minister Fumio Kishida is in Kyiv today to show support for Ukraine.
AUDUSD dropped to 0.6673 from 0.6725. Traders were disappointed that the RBA minutes revealed officials would discuss pausing rate hikes at the April meeting. The RBA noted that monetary policy was in restrictive territory and the economic outlook was uncertain.
Today’s US data includes Existing Home Sales and the Redbook index.
Chart of the Day-Fed rate Probabilities for December 2023
Source: CME FedWatch Tool
FX open, high, low, previous close as of 6:00 am ET
Source: Saxo Bank
Bank of China Fix: 6.8763, Previous: 6.8694
Shanghai Shenzhen CSI 300 rose 1.10% to 3982.38.
Xi Jinping and Vlad Putin bromance continues. Jinping has invited Putin for a sleep over and continue to work to undermine US global influence.
Chart: USDCNY 1 month