October 9, 2019

USDCAD open 1.3294-98 (6:00 am EDT)     Overnight Range 1.3297-1.3326

Fed Chair Jerome Powell used yesterday’s speech to announce that the Fed would expand its balance sheet to address liquidity in wholesale funding markets.  In other words, they will buy Treasury bills to boost liquidity in the repo market. Mr Powell insisted that It is not quantitative easing. (QE)

The Fed Chair  said, “I want to emphasize that growth of our balance sheet for reserve management purposes should in no way be confused with the large-scale asset purchase programs that we deployed after the financial crisis. Neither the recent technical issues nor the purchases of Treasury bills we are contemplating to resolve them should materially affect the stance of monetary policy, to which I now turn.

The Investopedia definition of QE is an unconventional monetary policy in which a central bank purchases government securities or other securities from the market to increase the money supply.” That sure sounds like what Mr Powell is proposing now.  If it quacks like a duck……….

FX traders are a wee bit skeptical.  The US dollar gave back yesterday’s gains and opened with losses against the G-10 majors expect against the Japanese yen.

FX Market Snapshot

Change in currency value against the US dollar from New York close to New York open

EURUSD drifted higher in Asia and Europe, rising from 1.0954 to 1.0989. Prices were supported by Powell’s speech, as many traders speculated that the balance sheet expansion was a precursor to another interest rate cut.  EURGBP buying underpinned EURUSD.

GBPUSD had a front seat on  Mr Toad’s Wild Brexit ride, during the European session. Prices soared to 1.2290 from 1.2199 on reports that the EU was prepared to extend talks until next summer. Another rumour said that the EU would propose a mechanism for a new Irish backstop. Both rumours were debunked, and GBP plummeted to 1.2208 in early New York trading.

USDJPY rallied from 106.94 to 107.40 on the back broad US dollar selling and a bump higher in US Treasury yields. 10-year US Treasury yields climbed to 1.558% from 1.517%

AUDUSD and NZDUSD were underpinned by hopes for progress in the US/China trade talks. The fact that the Chinese delegation still planned on meeting on October 11, despite the latest American provocation, was viewed as a positive development.  Both currency pairs inched higher in the well-defined narrow ranges.

Oil prices recovered from yesterday’s end-of-day, American Petroleum Institute (API) report that US crude inventories rose 4.13 million barrels. WTI dropped from $52.64/ barrel to $52.32/b in early Asia, before rallying to $52.98/b in Europe. Broad US dollar weakness fueled the gains.

USDCAD continues to see-saw in a 1.3290-1.3340 band with direction dictated by US dollar moves. The topside is capped by narrowing CAD/US interest rate differentials and hopes for positive news on the trade front.

Today’s US economic data is nothing to get excited about.  FX traders will look to Wall Street for direction, and equity futures point to a positive open.  The minutes from the September 18 FOMC meeting are released this afternoon.  However, they may have little bearing on markets due to Mr Powell’s speech yesterday.

USDCAD Technical View

The intraday USDCAD technicals are unchanged.  They are  bullish while prices are above 1.3290, looking for a break of resistance in the 1.3340-80 zone to trigger a rally toward 1.3550.  A move below 1.3290 would suggest further losses to 1.3240. Below 1.3240 argues for more 1.3100-1.3350 consolidation.

Today’s Range 1.3280-1.3360

Chart: USDCAD 1 hour

Source: Saxo Bank