Photo: Warner Bros

January 23, 2023

  • Quiet markets eyeing US debt ceiling theatrics.
  • Traders leaning toward dovish Fed next week.
  • US dollar on the defensive, commodity currency bloc shines

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3357-62, overnight range 1.3344-1.3384, close 1.3380

USDCAD traded sideways in Asia then slipped in Europe in an uneventful start to the week.  Traders are looking ahead to Wednesday when the BoC monetary policy statement and updated economic forecasts are revealed.

Canadian inflation cooled in December mainly due to falling oil prices, but optimistic are expecting further declines throughout the year.  Markets are expecting the BoC to hike rates by 25 bps.

However, in the latter part of 2022, BoC officials spent a lot of time talking about how it takes time for the impact of monetary policy to work through into the economy. They could surprise markets and do nothing on Wednesday.

USDCAD is also undermined broad US dollar weakness from some dovish Fed-speak, and by rising commodity prices including oil.

WTI climbed from $79.30/barrel Friday to $82.25/b overnight.  Traders are bullish due to Russian oil sanctions coming into effect Feb. 5, and more talk about capping prices on all Russian refined energy products.  Prices are also supported by hopes for increased demand from China.

Canada New Housing Price Index data for December is due.

USDCAD Technical Outlook

The intraday USDCAD turned bearish with move below 1.3440 Friday and are looking for a test of support in the 1.3310-40 area which has contained downside moves since November 17.  A break below 1.3310 targets 1.3220.

A break above 1.3480 will negate the downside pressure and shift the focus to 1.3620.

The longer-term uptrend from June, is intact while USDCAD trades above 1.3310.

For today, USDCAD support is at 1.3340 and 1.3310.  Resistance is at 1.3380 and 1.3430.

Today’s range 1.3330-1.3420

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

The Lunar New Year (the year of the rabbit) is upon us, except in Washington, where it is the Looney New Year, thanks to the semi-annual debt ceiling theatrics.

China, Hong Kong, Taiwan, South Korea, Singapore, Vietnam and Malaysia were closed making for a very quiet session in Asia.

Germany will not “stand in the way” of Poland sending German-made armoured vehicles to Ukraine, prompting President Zelensky to say “tanks.”  The German reticence over sending tanks to Ukraine can be traced back 82 years, after what happened to the country when Panzer divisions blitzed across Europe.

Friday, Fed Governor Christopher Waller toned down his usual hawkish rhetoric saying he favoured a 25 bp rate hike on Feb 1, which followed on the heels of dovish comments from Vice Chair Lael Brainard earlier in the week.

The Atlanta Fed GDPNow models estimates Q4 2022 real GDP at 3.5%.

EURUSD traded in a 1.0855-1.0926 range overnight and dipped to 1.0880 in NY.  The single currency continues to be supported by dovish Fed-speak and hawkish ECB chatter.  EURUSD technicals are bullish above 1.0790 looking for a test of 1.1000.

GBPUSD broke above 1.2300 on Wednesday and touched 1.2447 overnight. Like the single currency, GBPUSD is underpinned by the prospect of rising UK interest rates in the face of slowing or halting US rate increases. The BoE is expected to hike 50 bps next week.

USDJPY is at the top of its 129.06-130.43 range. The currency pair remains bid in the wake of dovish surprise from the Bank of Japan last week. The BoJ’s Yen 1 trillion extension of 5-year loans to banks is another yield curve control tactic and described as de facto quantitative easing.

AUDUSD traded in a 0.6965-0.7013 range overnight before sliding to 0.6990 in NY.  AUDUSD continues to benefit from the China reopening story, higher commodity prices and broad US dollar weakness.

The Chicago Fed National Activity Index is ahead.

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix: CLOSED  6.7702, previous 6.7674

Shanghai Shenzhen CSI 300 closed 4181.53. 20Jan23

Chart: USDCNY one month

Source: Bloomberg