April 4, 2022

  • China locks down Shanghai-26 million people impacted
  • RBA meeting Tuesday, FOMC minutes Wednesday
  • US dollar opens modestly firmer

FX change at a glance: 24 hours

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2500-04, overnight range-1.2487-1.2587, close 1.2512

USDCAD is consolidating recent losses with prices bouncing between 1.2487-1.2527, even though WTI oil prices are well-below their peak-Russia invasion peak.

WTI traded in a $98.10/barrel-$100.69 range overnight, with prices weighed down on reports of a truce in the Saudi-Yemeni conflict. Some traders suggest the truce means better oil supply security, although the Houthi rebels barely caused a blip in Saudi oil production.

USDCAD outlook is cautiously negative due to elevated Canadian inflation suggesting the Bank of Canada will be more aggressive in hiking rates. JPMorgan is predicting a 0.50% rate hike at the April 13, and June 1 meetings.

The Bank of Canada Business Outlook survey is due today.

USDCAD technical outlook

The USDCAD technicals are bearish while trading below 1.2550, looking for a break below the 1.2440 support area to target 1.2250 then 1.2000. A move above 1.2550 would delay the downtrend but only a break above 1.2660 would shift the focus to the top.

For today, USDCAD support is at 1.2470 and 1.2430.  Resistance is at 1.2530 and 1.2550.  Today’s Range 1.2460-1.2530

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

Traders were cautious to start the week. News that China locked down Shanghai completely and reports of Russian atrocities on Ukraine civilians were mildly risk averse. Furthermore, there is fresh political uncertainty from nuclear-armed Pakistan after Prime Minister Imran Khan dissolved parliament to avoid losing anon-confidence vote. Mr Khan claims it is part of a US-lewd conspiracy.

Chinese energy companies are reportedly lining up to buy heavily discounted Russian oil. If true, it is a violation of US sanctions but China believes the US rules do not apply to them

Traders are pricing the fed funds terminal rate (or neutral rate) above 3.0%, according to ING analysts, after hawkish Fed-speak that argued a couple of 0.50% rate hikes would be needed to put a lid on inflation.

The latest yield curve inversion has led to plenty of debate as to whether it is a signal of a looming recession. The US 10 year yield is 2.382%, while the 2-year yield is 2.416%.

Global equity traders do not appear very worried. The major Asia equity indexes squeezed out tiny gains, European bourses are modestly higher, and DJIA and S&P 500 futures are in positive territory. WTI oil prices are close to unchanged, while gold has a small gain.

EURUSD is at the bottom of its overnight 1.1007-1.1053 range. EU politicians are flapping their gums in outrage at reports of Russian troops targeting civilians and are threatening new sanctions on Moscow, although Russian energy products won’t be on the list. The sanction chatter and the US rate hike outlook weigh the single currency. A break below 1.0980 targets 1.0910.

GBPUSD traded in a 1.3100-1.3136 range, rising in Asia, and retreating in Europe. Traders are taking their cue from broad risk sentiment. GBPUSD may be underpinned by EURUSD weakness due to the risk of further sanctions from the escalation of Russian hostilities in Ukraine. The BoE will greatly outpace ECB rate hikes in 2022, supporting GBPUSD. GBPUSD is in an uptrend above 1.3060, looking for a break above 1.3160 to extend gains to 1.3280.

USDJPY is trading with a bullish bias while prices are above 122.00 and consolidated Friday’s move in a 122.28-122.79 band. Prices are supported by the bullish outlook for US Treasury yields.

AUDUSD and NZDUSD are trading with a positive bias supported by firm commodity prices. The Reserve Bank of Australia monetary policy meeting is Tuesday and expectations are for a hawkish statement, mainly due to robust domestic data.

The US data calendar only has factory orders.

Chart of the Day-US 2yr/10 yr spread

Source: CNBC

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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3509, closed Ming Festival

Shanghai Shenzhen CSI 300 closed Ming Festival

Shanghai (population 26 million) fully locked down to combat another COVID-19 outbreak

Chart: China 1 month

Source: Saxo Bank