May 26, 2023

  • Debt ceiling deal talk supports equity markets.
  • PCE Price index rises higher than expected.
  • USD remains bid, but little changed from Thursday’s close.

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3625-29, overnight range 1.3603-1.3653, close 1.3643

USDCAD continued to inch higher yesterday due to broad US dollar demand after robust US data.  Stronger than expected Q 1 GDP growth combined with a drop in weekly jobless claims and a rebound in the Chicago Fed National Activity index boosted Treasury yields.  The Fed is expected to hike rates by 25 bps in July and not cut them before year end.

Talk of progress in the US debt ceiling negotiations improved risk sentiment and USDCAD retreated to its session low in early NY trading but popped higher after the US PCE Price index data.

WTI oil prices consolidated yesterday’s losses in a $71.52-$72.43/ barrel range. Prices dropped from $74.12 to $71.05 yesterday after the Russian oil minister said Opec was unlikely to make any more production cuts. His remarks offset the Saudi Arabian Energy Minister’s earlier threat to short-sellers.

USDCAD will continue to track broad risk sentiment with the downside limited by widening US/CAD interest rate spreads and soft oil prices.

USDCAD Technical Outlook

The intraday USDCAD technicals are bullish above 1.3530. Prices need to overcome resistance at 1.3660 or risk a correction down to 1.3530, the uptrend line from May 10.  A break below 1.3530 targets 1.3410 while a break above 1.3660 targets 1.3800.

Longer term, stripping out the Covid range, leaves USDCAD in a 1.3000-1.3900 band.  At 1.3650, risk reward suggests 650 bp of gains vs potential 250 bp loss.

For today, USDCAD support is at 1.3560 and 1.3520.  Resistance is at 1.3660 and 1.3690.

Today’s range 1.3550-1.3660

Chart: USDCAD weekly

Source: Saxo Bank

G-10 FX recap and outlook  

It’s Memorial Day weekend in America which will be more memorial for markets if the White House announces a deal to increase the debt ceiling. That could happen if policymakers work through the long weekend.

Crime reportedly “does not pay.” However ratting out your company to authorities can be extremely rewarding. An unnamed “whistleblower” is pocketing a $279 million reward for tipping off the SEC about Swedish telecom company Ericsson’s use of bribes to win business.

The US PCE Price Index (the Fed favourite inflation measure) rose 4.4% y/y in April compared to 4.2% in March and sharply higher than the 3.9% forecast.  It was enough to move the needle from a Fed rate hike pause in June to a 53.9% chance of a quarter point bump.

That news, along with a 1.1%m/m rise in April Durable Goods Orders also boosted the US dollar which ad slipped ahead of the data.

EURUSD traders were unimpressed with debt ceiling talk or US data and drifted in a 1.0720-1.0757 range. Comments by ECB Chief Economist Philip Lane suggesting lower energy prices would drive inflation lower were not a factor.

GBPUSD rallied from 1.2313 in Asia to 1.2394 in early NY, before slipping down to 1.2357 following the US PCE report. UK April Retail Sales rose 0.5% m/m, easily topping the forecast of a 0.3% gain. GBPUSD gains may be capped by resistance from the May 11 downtrend line which comes into play at 1.2450.

USDJPY dropped from 140.10 to 139.51, coinciding with the US 10-year Treasury yield dropping to 3.781% from 3.83%. That changed after today’s data.  USDJPY rallied to 140.22 while the US 10-year Treasury yield climbed to 3.82%. Tokyo April inflation dropped to 3.2% compared to the 3.5% y/y level seen in March.

AUDUSD made a new 2023 low when it fell to 0.6492 from 0.6528.  The losses were due to the risk of higher US rates for longer and soft Australian April Retail Sales report. (actual 0% vs forecast 0.2%.

The Michigan consumer sentiment is expected at 57.7, unchanged from the previous reading.

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

Source: Bloomberg

China Snapshot

Bank of China Fix: 7.0760, previous 7.0529

Shanghai Shenzhen CSI 300 rose 0.01% to 3850.95.

Chart: USDCNY 6 month

Source: Bloomberg