Photo: Wikimedia Commons

June 6, 2023

  • RBA surprises with 25 bp rate hike
  • Equity traders debating about bull market or bear market rally.
  • US dollar retreats slightly, AUD soars.

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3417-21, overnight range 1.3392-1.3449, close 1.3444

USDCAD dipped below 1.3400 after the Reserve Bank of Australia’s surprise 25 bps rate hike. Many analysts view the RBA action as a precursor to the Bank of Canada tomorrow and for good reason. BoC and RBA guidance is often similar.

The RBA paused its tightening cycle on April 4 saying it was necessary due to policy lags and a substantial slowdown in household spending. However, they kept their hiking bias.

The BoC came to a similar conclusion a month earlier. They left rates unchanged due to inflation falling to 5.9% in January and expected the fall to continue to 3.0% in the middle of the year. The BoC also indicated that rates would rise if warranted by incoming data.

The RBA raised its benchmark rate to 4.10% to provide greater confidence that inflation will return to target within a reasonable time frame.

The BoC faces a similar issue and warned that rate decisions would be data dependent. Inflation is below its peak, but the downtrend has stalled. CPI rose 4.4% in April which was higher than the 4.3% seen in March. The Canadian economy is growing faster than the Bank of Canada expected.

Wednesday’s BoC monetary policy decision is about a 50/50 bet and today’s Ivey PMI data will not change the equation.

USDCAD Technical Outlook

The intraday USDCAD technicals are bearish inside a 1.3380-1.3460 trading band while trading below, looking for a break below 1.3380 to extend losses to 1.3300.  A move above 1.3460 targets 1.3560.

The longer term USDCAD technicals are bearish below 1.3460 and looking for a move below 1.3250 (2023 low) to test the 1.3000 (61.8% Fibonacci retracement of April 2022, 1.2405-October 2022, 1.3965 range.

For today, USDCAD support is at 1.3380 and 1.3350.  Resistance is at 1.3460 and 1.3490.

Today’s range 1.33370-1.3450.

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook  

There is a “whole lot of nothing” going on. The FOMC meeting is a week away and there aren’t any notable data reports until Tuesday’s CPI release. Analysts are debating whether the Fed hikes this month or in July and have greatly reduced bets for a rate cut in 2023.

Equity traders are trying to decide if the latest S&P 500 gains are a bull market or just a bear market rally. Bloomberg’s John Arthurs (pay wall) has an excellent article on the topic.

Russia or Ukraine destroyed a major dam. Both sides blame each other although Russia appears to be the greatest beneficiary as it could put a serious dent into Ukraine’s counter-offensive plans.

Saudi Arabia’s announcement that it would cut crude production by 1.0 million barrels per day does not appear to be having the desired effect. WTI has dropped over 50% from its post-announcement spike and traded in a $70.16-$72.00/barrel range overnight.

EURUSD is at the bottom of its 1.0669-1.0732 range. Eurozone  data was not very important. Retail sales fell 2.6% y/y in April which was better than expected. The March result was revised to 3.3% from 3.9%.  EURUSD is in a minor uptrend above 1.0680 and looking for a break above 1.0730 to extend gains to 1.0780.

GBPUSD retreated to1.2393 after peaking at  1.2458 range on the back of widespread US dollar demand, although the downside should see some support from expectations of Bank of England rate hikes. Prices may also benefit from a hawkish forecast from Goldman Sachs suggesting sterling will outperform its peers.

USDJPY retreated from 139.65 to 139.11 before recouping the losses  and reaching 139.89 in NY. The currency pair gained as the US 10-year Treasury yield inched up to 3.71%.

AUDUSD climbed to 0.6684 after the surprise RBA rate hike but fell to 0.6650 in NY.

The US economic calendar is empty.

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

Source: Bloomberg

China Snapshot

Bank of China Fix: 7.1075, previous 7.0904

Shanghai Shenzhen CSI 300 fell 0.94% to 3808.16

Chart: USDCNY 6 month

Source: Bloomberg