Picture: Warner Bros.

October 18, 2021

Rising oil prices, UK rate hike warning, spook markets

Equities fall after weak China data

US dollar rebounds, GBP, NZD open flat

FX at a Glance:

Source: IFXA/RP

USDCAD Snapshot   Open 1.2391-95 Overnight Range 1.2351-1.2408 Previous close 1.2363

USDCAD is consolidating last weeks gains. The currency pair dropped to 1.2335 on Friday as markets were in “rally-mode.” US equities climbed on strong earning’s reports, and better than expected US Retail Sales data (actual 0.7% m/m vs forecast -0.2% m/m).

Risk sentiment soured in Asia today after China reported weaker than expected Q3 GDP and Industrial Production data. US 10-year Treasury yields climbed from 1.577% in Asia to1.614% in early NY, stoking inflation fears and exacerbating equity market weakness.

USDCAD rallied on the news, but surging oil prices acted as a drag on gains.  WTI oil rose 1.22% since Friday’s close.  Today’s Bank of Canada Business Outlook Survey (BOS) may also limit USDCADF gains as it is expected to be upbeat cautious due to higher inflation and supply chain disruption fears.

Technical view:  The intraday USDCAD technicals are bearish below 1.2440 but downside moves are stalled by support in the 1.2335-1.2360 area which includes the 61.8% Fibonacci retracement level of the June-August range. A decisive move below 1.2325 targets 1.2275.  Prices are likely to bounce within a 1.2335-1.2440 band for the next few sessions, due to offsetting pressures from oil and equities.

For today, USDCAD support is at 1.2360 and 1.2330.  Resistance is 1.2410 and 1.2440. Today’s range 1.2360-1.2440

Chart USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

Asia markets opened under a cloud.  Bank of England Governor Andrew Bailey warned that the central bank would have to act if “we see a risk, particularly to medium-term inflation and to medium-term inflation expectations.” Then New Zealand reported that Q3 inflation surged to 4.9% y/y compared to 3.3% previously.  Chinese data made a “bad news day” worse.  GDP and Industrial production were lower than expected.

Japan’s Nikkei 225 closed down 0.15%, while Australia’s ASX 200 managed to climb 0.25%.  European bourses are lower, led by a 0.82% dip in the French CAC index.  S&P 500 and DJIA futures are down 0.31% and 0.24%, respectively.  WTI oil prices gained 1.22% rising interest concerns sent gold tumbling down 0.37% from Fridays close.  Bitcoin (BTCUSD) jumped to $61,390.46 in anticipation of a US crypto ETF launched today.

EURUSD traded in a 1.1673-1.1605 band, which is inside last week’s Tuesday-Friday range. Prices are weighed down by the jump in US treasury yields and dovish comments by ECB President repeating that inflation gains are “transitory,” even as her counterpart across the channel warns of rate hike risks from inflation.  A EURUSD break on either side of 1.1550 or 1.1650 will be worth 0.0050 points.

GBPUSD managed to open in NY with a tiny gain compared to Friday’s opening level. Bank of England Governor Andrew Bailey suggesting it “would act” in response to inflation pressures. He said “Monetary policy cannot solve supply-side problems – but it will have to act and must do so if we see a risk, particularly to medium-term inflation and to medium-term inflation expectations.” 

And in case traders were not getting the message he added, “And that’s why we at the Bank of England have signalled, and this is another such signal, that we will have to act.”

The comments helped offset selling pressures from the prospect of higher US interest rates.  However, concerns about rising energy costs and the ongoing EU/US dispute over the Irish border may limit upside.  GBPUSD is in an uptrend while prices are above 1.3650.

USDJPY consolidated Friday’s gains in a 114.03-114.04 range.  Prices were unable to break above 114.50 resistance due to concerns about the surge in crude prices on Japan’s economic growth.

AUDUSD slumped, falling from 0.7436 to 0.7383 on the back of broad US dollar demand due to inflation fears and by weaker than expected Chinese data. NZDUSD outperformed following the higher than expected NZ inflation data leading to speculation that the RBNZ will raise interest rates by 1.0%  by the middle of 2022.

There are not any US data releases of note.

Chart of the Day- WTI oil-daily

Chart: Saxo Bank

FX open, high, low, previous close

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.4300, Previous 6.4386

Shanghai Shenzhen CSI 300 index fell 1.16% to 4,874.78

China Q3 GDP 0.2% (forecast 0.5%, previous 1.3%

September Industrial Production 11.8% y/y, previous 13.1%

September Retail Sales 4.4% y/y (forecast 3.3%, previously 2.5%)

PBoC Governor says economy doing well but faced challenges like default risks from certain mismanaged firms.

Chart: USDCNY 1 month

Source: Yahoo Finance