Photo:Bing AI

August 8, 2023

  • China trade data is weaker than expected.
  • Equity markets wobbly after Chinese data.
  • USD dollar opens lower vs Europe and higher vs commodity currency bloc.

FX at a Glance

Source: IFXA/RP

USDCAD Snapshot:  open: 1.3438-42, range since Fri. close: 1.3336-1.3502, close  Fri. 1.3381. Mon. 1.3368

USDCAD rallied Friday after the weaker than expected Canadian employment report, then traded sideways on Monday, before extending gains overnight. Prices continued to rise in NY and are attempting to decisively break the pandemic downtrend line.

The soft Chinese trade data and its implications for global growth and commodity demand sparked the latest bout of USDCAD strength which lifted the prices to just below 1.3400 in early NY trading today.

Oil traders were not thrilled with the Chinese trade numbers and knocked WTI down to $79.94/b from $82.47 in Asia. However, losses were curtailed by the recent production cuts by Saudi Arabia and Russia.

A wider than expected Trade deficit (actual -$3.73 b vs forecast 2.9B) exacerbated the USDCAD rally.

USDCAD Technicals

The USDCAD technicals are bullish while trading above 1.3380 and this mornings break above the 1.3480-90 area which represents the downtrend line from March, shifts the focus to 1.3660.  A move below 1.3380 negates the uptrend and targets 1.3270.

Longer term, Fibonacci retracement analysis suggests that a break above 1.3660 (61.8% retracement level of March 2020-2021, pandemic range) targets 1.4040, the 76.4% Fibonacci level.

For today, USDCAD support is at 1.3410 and 1.3370.  Resistance is at 1.3530 and 1.3560. Today’s range 1.34460-1.3560.

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap

Monday’s mildly positive risk sentiment which led to Wall Street closing with gains, soured in Asia. Weaker-than-expected Chinese trade data and a series of regional US bank downgrades by Moody’s raised concerns about the health and strength of the global recovery. Ongoing Chinese property development issues also raised alarm.

Risk sentiment wasn’t helped by Fed Governor Michelle Bowman (and voter) suggesting rates have further to rise well New York Fed President John Williams opining that another rate hike is unnecessary.

However,  this morning, Philadelphia Fed President Patrick Harker (voter) suggested that there was no longer a need for rate hikes.

There is no significant top-tier US data until Thursday when the July inflation report will be released, keeping the focus on the bond market and US Treasury yields.

Asian equity indexes closed mixed.  Japan’s Nikkei gained 0.30%, while  Australia’s ASX  200 was flat.  European bourses are all in the red led by a 0.95% drop in the German Dax.  S&P 500 futures are down 0.55%.

The US 10-year Treasury yield has slipped from 4.078% yesterday to 3.999% this morning.

EURUSD has been range-bound in a 1.0966-1.1017 band since the New York close on Friday. Traders are searching for direction, and even news that Italy planned to impose a tax on “excess bank profits” failed to spark any action. The final German HICP data came in as expected at 6.5% year-on-year.

GBPUSD traded in a 1.2713-1.2785 range since Friday’s close, with prices hitting session lows in New York today due to widespread demand for the US dollar.

USDJPY climbed from a low of 141.52 in Asia yesterday to 143.43 just before NY opened today. Traders are focused on the risk of higher US Treasury yields because the US Treasury is planning to sell $103 billion in 3, 10 and 30 year bonds this week.  Recent BoJ intervention in the JGP market suggests Japanese rates are not rising any time soon.

AUDUSD traded poorly due to the weak Chinese data and is at the bottom of its 0.6508-0.6593 range since Friday’s close.

There are no US data reports of note today

FX high, low, previous close-Monday

Source: Saxo Bank

China Snapshot

Bank of China Fix: Today 7.1365 , Monday 7.1380.

Shanghai Shenzhen CSI 300 fell 0.26% to 3979.73.

Trade data weaker than expected.  Exports fall 14.5% (forecast -12.5%) and Imports dropped  12.4% (forecast -5.0% y/y)

Auto sales fell 2.3% in July although the news should be taken with a grain of salt as July is traditionally a soft month for car buyers.

Chart: USDCNY 6 month

Source: Bloomberg