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July 14, 2021

Powell’s opening remarks for noon testimony  released

BoC monetary policy statement and MPR ahead

RBNZ plans to end QE next week

US dollar consolidates yesterday’s gains, but off its best levels

USDCAD open 1.2506-10, Overnight range, 1.2453-1.2525,  Previous close 1.2515

FX at a Glance

FX Recap and outlook

Fed Chair Jerome Powell sticks to his dovish view at his Congressional testimony.  His opening remarks were released this morning and he maintains that the US economy “is still along ways off” from achieving the Fed’s dual mandate.  He admitted inflation increased “notably” but insists it will moderate, and said the “there is a long way to go” in repairing the Labor market.

The US dollar is consolidating yesterday’s gains at the open, then retreated after Powell’s speech was released. The major Asia equity indexes closed with losses except for Australia’s ASX 200, which posted a 0.31% gain.  European bourses are in the red, and Wall Street futures are flat.  Oil prices are softer, while gold is firmer.  US 10-year Treasury yields are at 1.40%.

EURUSD broke above the top of its 1.1773-1.1799 range to test resistance in the 1.1830 area after US Producer Price data rose 7.3% y/y compared to 6.6% y/y in May.  .  Eurozone Industrial Production fell 1.0% m/m with supply chain disruptions and coronavirus issues largely responsible for the decline.  A decisive break below 1.1770 will drive EURUSD to 1.1700, while a move above 1.1880 is needed to negate the downside.  Traders are biding their time until the Powell testimony.

GBPUSD climbed from 1.3803 to 1.3886 with gains underpinned by UK inflation rising 2.5% y/y in June (forecast 2.2%).  The rally was tempered by softer than expected PPI data.  Of course, the increase is “transitory,” and analysts and the Bank of England expect it to retreat in 2022.  GBPUSD continues to consolidate in a 1.3750-1.4000 range.

USDJPY snapped the uptrend line from January when prices broke below 110.30, which suggests further weakness to 109.60. US 10-year Treasury yield’s dipped in early NY trading which knocked USDJPY from its overnight high of 110.69 to 110.20.

NZDUSD was the highlight of the overnight session and the best performing G-10 currency since yesterday’s NY open.  NZDUSD jumped to 0.7040 from 0.6941 due to hawkish commentary from the RBNZ.  Forget tapering; the RBNZ turned off the QE taps.   They announced they were halting additional asset purchases under the Large Scale Asset Purchase (LSAP) programme by 23 July 2021.

AUDUSD underperformed against Kiwi due to US/China tensions over the South China Sea, sanctions, Hong Kong, etc.

USDCAD retreated from yesterday’s post CPI peak of 1.2523 and is trading at 1.2453 in NY, after dropping from its opening level of  1.2508. The dip coincide with EURUSD climbing to 1.1820, and Wall Street futures rebounding sharply from their overnight lows.    Prices are getting a bit of support from the slide in WTI oil prices from $75.31/barrel to $74.76/b, while gains are limited ahead of today’s Bank of Canada monetary policy statement and MPR.  The BoC is almost universally expected to trim QE purchases to $2 billion/week from $3.0 bn.  The MPR is expected to be upbeat.

USDCAD technical outlook

USDCAD has a modestly bullish bias inside a 1.2250-1.2600 trading band.  The intraday technicals are modestly bearish below 1.2530, looking for a break below 1.2470 to extend losses to 1.2420. A break above 1.2530 shifts the focus to 1.2600, while a move below 1.2420 targets 1.2390.  For today, USDCAD support is at 1.2470 and 1.2410. Resistance is at 1.2530 and 1.2570   Today’s range 1.2430-1.2530

Chart USDCAD  daily

Source: Saxo Bank

FX open, high, low, previous close

Source: Saxo Bank