Source: IFXA Ltd/RP

FX change at a glance:

USDCAD Snapshot: open 1.2677-81, overnight range 1.2655-1.2685, close 1.2655,

USDCAD consolidated Monday’s losses in a quiet overnight session. Gains due to broad US dollar demand stemming from the renewed focus on US rate hikes were offset slightly by the surge in WTI oil prices.

WTI climbed from $115.24/barrel yesterday to $119.39/b overnight due to the news of the EU oil embargo on Russian crude. Iran’s stockpile of enriched uranium is reportedly over 18 times the agreed limit, suggesting the Iran oil embargo will remain in place for longer than expected.

USDCAD traders ignored today’s March GDP data.  The results were mixed.  March GDP rose 0.7% m/m, better than expected, but still below the downwardly revised February level of 0.9%. GDP rose 3.1% y/y compared to forecasts for a 5.4% y/y increase.

The BoC monetary policy meeting is tomorrow and there won’t be a press conference. The BoC will hike rates 0.50% but traders will have to wait until Thursday when Deputy Governor Paul Beaudry will explain the rational behind the move.

 USDCAD technical outlook

The intraday USDCAD technicals are bearish below 1.2720. Prices may churn between the 100 day moving average at 1.2694 and the 200 day moving average at 1.2659.  Below the latter level, suggest a test of 1.2460.  A decisive break of 1.2640, puts 1.2500 in play. A move above 1.2760 targets 1.2800.

For today, USDCAD support is at 1.2640 and 1.2610.  Resistance is at 1.2720 and 1.2750.  Today’s Range 1.2620-1.2720.

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

Monday’s positive risk sentiment gave way to risk aversion overnight as traders digested Fed policymaker Christopher Waller’s comments.  The noted hawk said, “I am not taking 50 basis-point hikes off the table until I see inflation coming down closer to our 2 percent target.” His remarks contradict his non-voting colleague Raphael Bostic, who got the dovish-bandwagon rolling when he suggested a rate hike pause was in order, for September.

His comments helped boost the US 10-year yield from 2.75% to 8.826%, which underpinned the US dollar overnight and knocked global stock prices lower.

The major Asian equity indices closed mixed.  The losers were led by a 1.03% drop in Australia’s ASX 200 index while Japan’s Nikkei 225 index slipped 0.30%.  Chinese indexes rallied on China stimulus news.  European bourses are trading lower except the UK FTSE100, which is 0.22% firmer.  S&P 500 and DJIA futures are in negative territory.  WTI oil jumped 3.43%, while gold slipped 0.20%.

European traders a getting used to the reality that rate hikes are coming after German and EU inflation reports.  Yesterday German CPI rose 7.9% y/y in May, well above April’s 7.4% y/y result.  Today EU headline CPI jumped to 8.1% and Core-CPI climbed to 3.8%.

The EU managed to hammer out a deal to ban imports of Russian oil that arrive by sea.  Hungary successfully blocked a ban on pipeline shipments, although that exemption is supposed to be temporary.  In addition, the EU kick Russia’s largest Bank, Sberbank out of the SWIFT system.

Russia said they would find other buyers for their crude without directly naming India and China.

EURUSD traded lower, falling from 1.0769 yesterday to 1.0720 today, before drifting to 1.0725 in NY.

The single currency is supported by the German and EU inflation data, which pretty much confirms a July rate hike.   However, gains are capped by the latest EU sanctions on Russia and economic risks from the war in Ukraine.  The intraday technicals are bearish while prices are below 1.0750, with a decisive move below 1.0720 suggesting further losses to 1.0650.

GBPUSD traded with a negative bias in a 1.2593-1.2654 range with prices pressured by renewed US dollar strength, economic concerns which may hamper the BoE response to rising inflation.  The intraday GBPUSD technicals turned bearish with the move below 1.2620, setting the stage for a re-test of 1.2520.

USDJPY rallied from 126.87 yesterday to 128.34 today before sliding to 127.95 in early NY trading.

The BoJ steeped in and offered to buy an unlimited amount of 5 and 10-year JGB’s yesterday, reinforcing BoJ Governor Kuroda’s dovish monetary policy outlook.  The Governor said he would continue monetary easing to help the economy recovery from Covid.  The comments, the YCC measures, and hawkish Fed rhetoric boosted prices.  The intraday USDJPY technicals are bullish above 127.50.

AUDUSD dropped in early Asia trading, then rallied, rising from 0.7164 to 0.7202.  NZDUSD climbed from 0.6514 to 0.6562.  Both currency pairs ignored domestic data but were underpinned by China’s NBS Manufacturing and Non-manufacturing PMI indexes which were higher than in April.

President Biden and Fed chair Powell meet today.  Economic data includes Case-Shiller Home Price Index, Chicago PMI, and consumer confidence.

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

Chart: Saxo Bank

China Snapshot –

Today’s Bank of China Fix 6.6607 Previous 6.7048

Shanghai Shenzhen CSI 300 rose 1.55%% to 4,091.52

NHS May Manufacturing PMI (actual 49.6, forecast 49.6, April 47.4)

Non-manufacturing PMI (actual 47.8, forecast 50.7, April 41.9)

Chinese government takes more economic stimulus measures. They plan to speed up issuance of local government bonds and add new types of infrastructure and energy projects for fundraising.

China plans to speed up VAT credit rebates and look to lower interest rates.

Chart: USDCNY 1 month

Source: Yahoo Finance