Source:  Wikimedia

January 18, 2022

  • US Treasury yields soar, equities sink
  • Middle East tensions underpin oil
  • US dollar opens firmer, CAD outperforms

FX at a Glance

Source: IFXA Ltd/RP

USDCAD Snapshot: Open 1.2514-18, Overnight Range-1.2488-1.2532, previous close 1.2518

USDCAD bounced erratically inside a 1.2488-1.2532 range overnight with oil prices and US Treasury yields taking turns driving direction. Treasury yields proved to be the more dominant driver. The US 10-year Treasury yield hit 1.852% in Asia before sliding to 1.811% by the NY open, which underpinned USDCAD and the greenback against the major g-10 currencies.

Rising oil prices limited USDCAD gains. WTI oil climbed from $83.50/b yesterday to $85.72/b overnight fueled by escalating Middle East tensions and concerns as to whether Opec has the capacity to rapidly increase supply. Yemeni Houthi’s (Iran proxies) expanded their war with Saudi Arabia by going after Saudi-coalition partner UAE, with a drone attack near the Abu Dhabi airport on Monday. WTI is also underpinned ahead of the release of the Opec Monthly Oil Report today.

The Bank of Canada Business Outlook Survey (BOS) released yesterday was very upbeat.  Business hiring intentions jumped 10 points, and investment intentions rose 1 point, while labour shortages reached a 1year peak. The survey noted that “Expectations for total consumer price index inflation have moved up further, with two-thirds of firms now expecting inflation to be above 3% over the next two years.” Respondents also noted that the “broad-based demand for workers is putting upward pressure on wages.”

The BOS raises the odds that the BoC hikes rates in January.

Even so, the global market is focused on the US interest rate outlook and that is keeping the US dollar bid.

Technical view:  The intraday USDCAD technicals are bearish while trading below 1.2540, which guards the December 20 downtrend line which comes into play at 1.2630.  A topside break shifts the focus to the 1.2800 area. However, the RSI suggests downside momentum is waning ahead of strong support at 1.2440.

For today, USDCAD support is at 1.2480 and 1.2450.  Resistance is at 1.2540 and 1.2580.  Today’s Range 1.2480-1.2540

Chart USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

Fears of rising interest rates and elevated geopolitical tensions rippled through markets overnights, boosting US Treasury yields and oil prices.  Those fears started to fade in Europe and continued in early NY trading.

Asia equity indexes closed with losses except for the Shanghai Shenzhen CSI 300 index, which rose 0.97%.  European bourses fell but are well above earlier lows, while S&P 500 futures are treading water just above the overnight bottom.  Gold prices lost ground while oil prices gained.

EURUSD peaked in Asia at 1.1421 then drifted steadily down to its session low of 1.1384.  The jump in US Treasury yields sparked the selling pressure, and even a significantly more optimistic Euro area and German ZEW Sentiment Index failed to give the single currency any support.  The prospect of sharply higher US rates while the ECB leaves rates unchanged continues to weigh on the currency pair.

GBPUSD fell to 1.3599 from 1.3660.  UK employment data was better than expected, but analysts were less impressed with the details suggesting the job recovery stalled.  GBPUSD dropped alongside broad US dollar demand, however, the downside may be limited due to expectations for more aggressive tightening by the BoE.

USDJPY peaked in Asia at 115.05, coinciding with the US 10-year yield touching 1.852%.  Prices fell as yields dropped and reached 114.46 before bouncing to 114.65 in NY.  The Bank of Japan left interest rates unchanged and continued its yield curve control policy.  They tweaked their statements about inflation from “skewed to the downside.” To “balanced.” BoJ Governor Haruhiko Kuroda said, “We are not thinking at all about raising interest rates or changing the current accommodative policy.”

AUDUSD and NZDUSD dropped on the back of broad US dollar demand.  NZDUSD saw added selling pressure falling Business confidence.

There are not any notable Canadian or US economic reports today.

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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3521, previous 6.3599

Shanghai Shenzhen CSI 300 rose 0.97% to 4,813.35

Stock prices underpinned by hopes for further PBoC rate cuts.

China refrains from selling Olympic tickets to public due to COVID-19 concerns

Chart:  USDCNY 1 month

Source: Yahoo Finance