February 23, 2023
- Canadian inflation cools again in January.
- Putin speech aggravating geopolitical tensions.
- US dollar retreats compared to Friday open.
FX at a glance
Source: IFXA Ltd/RP
USDCAD Snapshot: open 1.3463-67, range since Friday close 1.3444-1.3506, close 1.3453
USDCAD continues to dance to the US interest rate tune. The rise in the 10-year Treasury yield underpinned prices but gains were capped ahead of today’s inflation and retail sales data.
Statistics Canada reported, “The Consumer Price Index (CPI) rose 5.9% year over year in January, following a 6.3% increase in December” Forecasters expected a 6.1% increase. Even better, Core inflation (excludes food and energy) fell to 4.9% y/y.
Retail sales rose 0.5% in December compared to a drop of 0.5% in November.
The results offset the hot Canadian employment report for January which suggests the BoC may stay on the sidelines at the March meeting.
USDCAD Technical Outlook
USDCAD bulls and bears continue to butt heads. The October downtrend line has survived many tests and is intact above 1.3530, The longer term uptrend from June 2022 is also intact while prices are above the 1.3280 area.
The hourly technicals are bullish above 1.3440, looking for a break above 1.3540 to extend gains to 1.3630. A break below 1.3440 targets 1.3360.
For today, USDCAD support is at 1.3440 and 1.3390. Resistance is at 1.3520 and 1.3560.
Today’s range 1.3440-1.3530.
Chart: USDCAD daily
Source: Saxo Bank
G-10 FX recap and outlook
The US dollar retreated from Friday’s peak in very quiet trading on Monday and is trading cautiously today.
Geopolitical tensions have risen. The US is annoyed at China, North Korea, Iran, and Russia. China is taunting Americans by floating balloons in US airspace and due to concerns that Beijing will send weapons and ammunition to Russia. North Korea continues to fire missiles into the Sea of Japan to protest US/South Korea war games.
Russian President Putin delivered a speech today blaming the west for forcing Russia to invade Ukraine. Then he announced he was suspending the nuclear arms treaty.
Elsewhere, a slew of PMI reports in Europe and UK garnered mixed reactions in FX markets ahead of Wednesday’s release of the FOMC minutes from February 1.
The major Asian equity indexes closed with modest losses. European bourses are in negative territory but above their session lows while Wall Street futures suggest a negative open. Gold and oil prices are down compared to Friday’s close.
The 10-year Treasury yield climbed from 3.828% Friday to 3.898% today.
EURUSD is trading at 1.0660 as of 6:00 am PST following a 1.0644-1.0704 band since Friday’s close. Geopolitical tensions and economic data are weighing on prices and traders ignored hawkish data and forecasts. German and EU Economic sentiment were better than expected and Goldman Sachs raised its forecast for the ECB terminal rate to 3.5%.
GBPUSD is the best performing G-10 currency since Friday, rising from 1.2010-1.2129 range boosted by higher than expected PMI data. Manufacturing PMI rose to 49.2 from 47, and Services PMI rose to 53 from 50.8. The gains support a more aggressive BoE monetary policy stance.
USDJPY traded in a 133.93-134.92 band with gains fueled by the surge in the US 10 -year treasury yield to 3.898% from 3.82%. range.
AUDUSD traded in a 0.6864-0.6919 range since Friday and opened in NY at 0.6878. Australian Manufacturing PMI rose to 50.1 from 50 previously, while Services PMI climbed to 49.2 from 48.6. The RBA minutes revealed that policymakers discussed a 50 bp hike. AUDUSD got an initial lift from the news, but it quickly evaporated.
NZDUSD traded in a 0.6210-60 range. The RBNZ is widely expected to announce a 50 bp rate increase tomorrow but the damage from Cyclone Gabrielle has led to calls for a less aggressive response.
FX open, high, low, previous close as of 6:00 am ET
Source: Saxo Bank
Bank of China Fix: 6.8557, Feb. 20, 6.8643, Previous: 6.8519
Shanghai Shenzhen CSI 300 rose 2.7%% to 4144.36 from Feb.17- 4034.51
Monday: PBoC leaves benchmark rates unchanged (1-year Loan Prime Rate 3.65%, 5-year 4.30%)
Chart: USDCNY 1 month