Source: Adobe Stock

September 15, 2022

  • FX adrift as Shanghai Cooperation Summit begins
  • Markets not inspired after US data dump
  • US dollar modestly firmer, CHF outperforms

FX at a glance: 

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3164-68, overnight range 1.3156-1.3188, close 1.3167

USDCAD drifted quietly in a narrow band.  Prices are supported by US/CAD bond spreads that widened in favor of the US, soft-ish WTI oil prices, and the latest government spending plan.

Prime Minister Trudeau said “You’ll forgive me if I don’t think about monetary policy” last August.  He practiced what he preached yesterday when he announced another chunky fiscal stimulus plan.  This time, the magic money tree dropped $4.5 billion in new spending to provide free dental care to children under 12, doubling of the quarterly GST rebate for low-income families, and a $500 top up to an existing housing benefit.

 Trudeau (a former drama teacher) claims the spending isn’t inflationary. Derek Holt (an economist) and Head of Capital Market Economics at Scotiabank disagrees. He said the spending would add to inflationary pressures at the start of the year.  Who do you believe?

WTI oil prices drifted in a $87.59-89.12/barrel range.  There is support from speculation that Opec may reduce production to boost prices, while gains are capped by concerns of slowing demand from weaker global growth.

 USDCAD Technical outlook

The intraday USDCAD technicals are bullish above 1.2980 and looking for a break of resistance in the 1.3210 area to set the stage for further gains to 1.3440.  Failure to break above 1.3210 followed by a drop below 1.3070 suggests a retest of the 1.2980 uptrend line.

For today, USDCAD support is at 1.3130 and 1.3010.  Resistance is at 1.3210 and 1.3240. Today’s range: 1.3140-1.3220

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

Traders are re-evaluating their outlooks for US interest rates after Tuesday’s US CPI data put the lie to “inflation has peaked” views. The subsequent US dollar rally, equity market plunge, and spike in US Treasury yields left seas of red ink. Now traders are reluctant to get involved ahead of Friday’s “quadruple witching hour.” (Stock index futures, stock index options, stock futures, and stock options expire simultaneously).

Today’s US data dump didn’t do anything to spark trading activity.  Weekly jobless claims were lower than expected at 213,000 compared to last week’s 218,00 increase.  The Philadelphia Manufacturing Business Outlook Survey was weaker than expected, falling from 6.2 in August to -9.9 in September.

August Retail Sales rebounded to0.3% from -0.4% in July

There is also potential drama brewing in Asia.

 The 22nd annual Shanghai Cooperation Organization (SCO) summit began today in Uzbekistan. China’s Xi Jinping, Russia’s Vladimir Putin, India’s Narendra Modi, and Iranian President Ebrahim Raisi are a few of the notables in attendance.

Already, Russia announced that a delegation from 80 corporations would visit Iran next week. In addition, Iran has applied for full membership in the organization. Russia and China are conducting joint naval patrols in the Pacific.

A US Senate committee is working on legislation to overhaul the US/Taiwan policy, which includes measures to help boost Taiwan’s defence against China.

EURUSD continued to consolidate Tuesday’s losses but is at the top of its 0.9957-1.0006 range in NY. ECB policymaker Luis de Guindos warned that the inflation outlook was deteriorating and that the risks were to the upside. The ECB is expected to hike rates by 75 bps in October, which some suggest, should underpin EURUSD. However, Nordea Bank economists disagree.  They predict that US rate hikes and economic outperformance will drive EURUSD lower.

GBPUSD traded quietly in a 1.1489-1.1548 band. The GBPUSD technicals are bearish below 1.1700, and the economic outlook is worse. There is concern that the proposed energy cap bill will cost £150 billion, and there are no details on how it will be funded.

USDJPY provided some excitement as it traded erratically in a 142.81 to 143.80 range. Prices are supported by the US 10-year Treasury yield, which is at 3.451% in NY. Traders are reluctant to drive USDJPY above 145.00 lest they incur the wrath of the BoJ in the form of intervention.

AUDUSD traded sideways in a 0.6720-0.6769 range. The currency did not get any traction from the employment report. Australia gained 33,500 jobs in August (-40,900 in July), and the unemployment rate ticked up to 3.5% from 3.4%.  

NZDUSD tracked AUDUSD and traded in a 0.5952-0.6024 band.

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix: 6.9101, previous 6.9116

Shanghai Shenzhen CSI 300 fell 0.94% to 4,027.12

PboC leaves interest rates unchanged.

Shanghai Cooperation Organization (SCO) Summit begins in Uzbekistan

Chart: USDCNY  1 month

Source: Bloomberg