Source: Pixabay

May 26, 2021

RBNZ signals rate hike in H2, 2022

US/Canada Trade tensions escalate

USD opens mixed to lower, NZD biggest gainer

USDCAD open 1.2073-77, Overnight range 1.2046-1.2092, Previous  close 1.2066

FX at a Glance

FX Recap and Outlook

The US dollar opened in NY within yesterday’s ranges after a subdued overnight session.  The New Zealand dollar was the exception.  It gained 1.16% after the RBNZ turned hawkish.

Global equity markets are cautious.  The major Asia equity indexes closed with modest gains except Australia’s ASX 200, which may have suffered from news of another COVID-19 outbreak (10 cases in Melbourne). European bourses are trading close to unchanged, while S&P and DJIA futures are slightly higher.   Oil prices are flat, and gold broke above $1900.00

The easy-money era may not be over, but it is getting close to last call.  The RBNZ joined the Bank of Canada and Norway’s Norges Bank, signalling that rate increases will happen sooner rather than later.   However, Fed and ECB policymakers continue to insist the party is a long way from over.

EURUSD traded quietly in a 1.2233-62 range, with prices supported by broad US dollar weakness.  10-year US Treasury yields slid from 1.627% on Monday to 1.567% today.  Gains were limited in part by ECB executive committee member Fabio Panetta pushing back against calls to taper QE.  He said “The conditions that we see today do not justify reducing the pace of purchases, and a discussion about phasing out the PEPP (Pandemic Emergency Purchase Programme) is still clearly premature.  EURUSD is bullish above 1.2170, looking for further gains to 1.2350.

GBPUSD is at the top of its 1.4135-73 range.  Traders appear to be shunning sterling for euros as the single currency benefits from an improved economic growth outlook as COVID-19 lockdowns ease and vaccines increase.  However, the short-term GBPUSD technicals are bullish above 1.4130.

USDJPY traded in a narrow 108.73-108.93 range.  Soft US Treasury yields cap gains.  Japanese officials are contemplating additional coronavirus cash payments to households and extending the existing state of emergency.

NZDUSD soared to 0.7315 from 0.7224 after the Reserve Bank of New Zealand delivered a somewhat hawkish monetary policy statement.  The RBNZ issued its version of the Fed’s dot-plot” forecast, showing the benchmark Overnight Cash Rate (OCR) starting to rise in the second half of 2022.  They also omitted reference to the level of the currency.

AUDUSD climbed from 0.7750 to 0.7795 due to broad US dollar weakness, and modestly better than expected economic data.

USDCAD traded with a bid tone.  Prices firmed in a 1.2046-1.2080 range, after reports the US picked another trade fight.   On May 21, the American’s announced plans for a new round of punitive duties on Canadian lumber.  Late yesterday, the US decided to go after Canada’s managed dairy industry, accusing Canada of violating the USMCA trade agreement. 

The US and Canadian economic calendars are empty.

USDCAD Technical Outlook The intraday USDCAD technicals are bullish above 1.2040, looking for a break above 1.2090 to extend gains to 1.2140. In addition, the move above 1.2060 snapped the downtrend line from April 22 on the 4 hour chart.  A break above 1.2140 targets 1.2220.  For today, USDCAD support is at 1.2050 and 1.2020.  Resistance is at 1.2090 and 1.2140. with the move below 1.2050 hanging a target on the 1.1935-50 area.  For today, USDCAD support is at 1.2030 and 1.1980.   Resistance is at 1.2060  and 1.2090.  Today’s Range 1.2040-1.2120

Chart: USDCAD 4 hour

Source: Saxo Bank

FX open, high, low, previous close

Source: Saxo Bank