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March 8, 2023

  • Markets roiled by hawkish comments from Fed Chair Powell
  • Bank of Canada ahead-no rate hike expected.
  • US dollar rallies across the board compared to Tuesday open.

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3753-58, overnight range 1.3748-1.3772, close 1.3754

USDCAD smashed through resistance in the 1.3680-1.3710 area in the aftermath of Powell’s hawkish interest rate view. The gains were exacerbated by a 5.0% plunge in WTI oil prices since yesterday.

Oil prices were depressed by fears of lower demand due to higher US interest rates and China’s conservative growth estimates.

The Bank of Canada is expected to leave interest rates unchanged after saying as much at the January meeting. However, the tone of the statement may be a tad hawkish in light of Mr Powell’s comments, although no policymakers will comment until Senior Deputy governor Carolyn Rogers speaks tomorrow in Winnipeg.

USDCAD Technical Outlook

The intraday USDCAD technicals are bullish following the decisive breach of the 1.3680-1.3710 resistance zone, which should now revert to support. The uptrend is intact while prices are above 1.3570, a level guarded by support at 1.3660.  A move above 1.3850 suggests a test of the 1.4000 area, while a break below 1.3660 argues for 1.3570-1.3770 consolidation.

For today, USDCAD support is at 1.3705 and 1.3660.  Resistance is at 1.3770 and 1.3850.

Today’s range 1.3710-1.3810

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

A flock of Fed officials have been chirping non-stop about the need for US interest rates to rise higher than expected. Their comments were mostly ignored. Fed Chair Jerome Powell said the same to the Senate Committee on Banking, Housing and Urban Affairs and financial markets imploded.

Mr Powell pointed out that January data on employment, consumer spending, manufacturing production and inflation partly reversed the softening trends seen a month earlier. He noted “the latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.”

Equities and commodities accelerated lower while the US dollar soared when Mr Powel warned “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”

The S&P closed down 1.53% but futures are posting small gains this morning as traders re-evaluate Powell’s comments.

Mr Powell is at it again today, this time he is in front of the House Financial Services Committee.

In Asia, Japan’s Nikkei finished with a 0.49% gain compared to a 2.35% drop in the Hong Kong Hang Seng index.  European bourses are flat to slightly higher with the German Dax rising 0.30%.

The US 10-year yield failed to crack above 4.0% in the wake of Powell’s remarks and has dipped to  3.929%. in NY. However, the US 2-year yield blasted above the 5.0% level, touched 5.04% overnight  which inverted the 2’s-10 year yield curve to a 40 year low, keeping recession fears alive.

Gold traders were spooked by the hawkish US rate outlook and XAUUSD fell from $1851.20, pre-Powell to $1801.63 in Asia.

Powell’s stated focus on incoming data will intensify the scrutiny of Friday’s nonfarm payrolls report and the March 14 inflation data.

EURUSD plunged from a 1.0692 peak in Europe yesterday to 1.0525 in Asia overnight.  Prices have inched higher to 1.0538 in NY. Prices were weighed down by weaker-than-expected Eurozone GDP which rose 1.8% compared to the forecast of 1.9% growth.

ECB President Christine Lagarde dusted off former ECB President Mario Drahi’s speech from July 26, 2012, and said “we will restore that price stability and we will do whatever it takes… it’s not a pretty situation.”  Her comments along with earlier hawkish rhetoric from a number of ECB officials suggesting higher than expected ECB rates, should reinforce EURUSD support in the 1.0470-1.0500 area.

GBPUSD took it on the chin, falling from 1.2064 yesterday to 1.1812 today due to the contrasting Fed and Bank of England interest rate outlooks.  The BoE is looking to pause rate increases while the Fed is still in hiking mode. A break below 1.1780 targets 1.1630.

USDJPY dropped from 137.91 to 13705 in NY range thanks to a lower US 10-year yield which is sitting at 3.93% after reaching 3.97% overnight.

AUDUSD is trading in a 0.6569-0.6607 range. RBA Governor Philip Lowe  remained rather vague as to the interest rate outlook,  saying that monetary policy was data dependent but a pause in hikes was a possibility.

The US Trade deficit was a tad wider at $68.4 (Previous $64.32).

Chart of the Day-yield curve inversion.

FX open, high, low, previous close as of 6:00 am ET

Source: Saxo Bank

China Snapshot

Bank of China Fix:  6.9525, Previous: 6.9156

Shanghai Shenzhen CSI 300 fell 0.36% to 4034.11.

Chart: USDCNY 1 month

Source: Bloomberg