October 22, 2024

• 10-year yields extend gains to 4.22%, overnight
• Analysts and Fed officials preaching caution.
• US dollar opens with small gains across the board.

FX at a Glance

Source: IFXA/RP

USDCAD open 1.3834, overnight range 1.3822-1.3838,  close 1.3830

USDCAD is trading with a bullish bias as it consolidates yesterday’s gain. Global risk sentiment has turned lower as markets digest the prospect of slow and gradual Fed rate cuts. The US 10-year Treasury yield surged from 4.01% on October 17 to 4.22% overnight. That move has widened the CAD/US 10-year spread to -97.3 bps, which is underpinning the currency pair.

The Bank of Canada monetary policy meeting is tomorrow, complete with updated forecasts in the new Monetary Policy Report. The consensus is for a 50 bp rate cut, but CIBC’s Chief Economist Avery Shenfeld makes an argument for a 75 bp rate cut. Essentially, if the BoC plans to reduce rates by 75 bps by December, why wait?

Oil prices are steady in a 69.36-70.84 range. Traders are looking ahead to the OPEC meeting in December, wondering if that will be the month Saudi Arabia ramps up production, simply because it needs the money. However, in the short term, reports that Iran was behind the failed attempt to assassinate Israeli Prime Minister Benjamin Netanyahu have lifted prices, as Iran’s leadership may face the same fate as Hamas and Hezbollah bosses.

The US and Canadian economic calendars are empty, leaving equity markets to drive direction.

USDCAD Technicals

The intraday technicals are bullish while trading above 1.3810 and looking for a break above 1.3850 to extend gains to 1.3900, then the August peak of 1.3945. A move below 1.3810 suggests a retest of the 1.3750 area.

Longer term, the move above 1.3660, which is the 61.8% Fibonacci retracement of the 2020-2021 COVID range, targets the 78.6% level of 1.4085.

USDCAD technicals

The intraday technicals are bullish while trading above 1.3810 and looking for a break above 1.3850 to extend gains to 1.3900 then the August peak of 1.3945. A move below 1.3810  suggests a retest of the 1.3750 area.

Longer term, the move above 1.3660 which is the 61.8 % Fibonacci retracement of the 2020-2021 Covid range, targets the 78.6% level of 1.4085

Today’s Range 1.3790-1.3860

Chart: USDCAD  1 month

Source: Investing.com

Caution Flags Are Out

Equity analysts and Fed officials are warning markets to be cautious. Three weeks ago, Fed Chair Jerome Powell said that the FOMC Committee “is not a committee that feels like it is in a hurry to cut rates quickly.” Yesterday, Cleveland Fed President Neel Kashkari and Kansas City Fed Governor Jeffrey Schmid echoed his remarks. Mr. Schmid called for a gradual and deliberate approach to rate cuts, while Mr. Kashkari said he only saw modest rate cuts in the next few quarters. San Francisco Fed President Mary Daly doesn’t agree and said that she didn’t see any information that would suggest the Fed wouldn’t continue to cut rates.

Global Equities Markets are Mixed

Wall Street closed with losses, except for the NASDAQ. Sellers emerged following reports from a few analysts, including Goldman Sachs, that the S&P’s decade of big gains is over. Traders were also unhappy with the recent surge higher in Treasury yields due to concerns a Trump election victory would fuel inflation.

Asian markets closed in the red, with Japan’s Topix losing 1.06% and Australia’s ASX 200 falling 1.66%. Chinese bourses were higher due to recent monetary stimulus actions. European bourses are mixed. The UK FTSE 100 is down 0.44% while the German Dax is up 0.305%. S&P 500 futures are down 0.50%.

EURUSD

EURUSD traded in a 1.0814-1.0838 range, with prices weighed down by the rise in US Treasury yields and the prospect of further ECB rate cuts. Traders are also awaiting remarks from ECB President Lagarde and Chief Economist Lane.

GBPUSD

GBPUSD traded negatively in a 1.2967-1.3016 range because of US election jitters and UK budget concerns, which are expected to lead to higher taxes. The selling pressure also stems from the Bank of England’s dovish outlook for rates, which contrasts sharply with the Fed’s slow and gradual rate cut view.

USDJPY

USDJPY rose in a 150.50-151.10 range due to the rise in US 10-year Treasury yields and political risks. Prime Minister Shigeru could find his position weaker after this week’s elections, which may delay the BoJ’s plans to normalize monetary policy. Arguably, nine years of below-zero interest rates is normal.

AUDUSD and NZDUSD

AUDUSD traded sideways in a 0.6651-0.6694 range. The risk of lower RBA rates and higher unchanged Fed rates competed with recent Chinese fiscal and monetary policy stimulus, and nothing was decided. NZDUSD traded in a 0.6021-0.6061 range with gains limited ahead of the US election.

USDMXN

USDMXN dropped from 19.9949 to 19.8511 due to profit-taking, but the downside is limited ahead of the US election. A Trump victory and Mexico’s ongoing judicial reform concerns risk a break above 20.1600 to target 21.5800.

BTCUSD (Bitcoin)

Bitcoin continued to consolidate the October rally in a 66,655-68,446 range overnight. US election jitters are one reason cited for the retreat.

FX high, low, open (as of 6:00 am ET)

Source: Investing.com

China Snapshot

PBoC fix:  7.1223  (prev. 7.0982)

Shanghai Shenzhen CSI 300 rose 0.57% to 3957.78

Chart: USDCNY and USDCNH

Investing.com