October 12, 2022

  • IMF downgrades world growth for 3rd time this year
  • FT story contradicts BoE Governor plan to end bond purchases
  • US dollar defensive ahead of FOMC minutes

FX at a glance: 

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3770-74, overnight range 1.3762-1.3828, close 1.3796

USDCAD continues to dance to external tunes, particularly S&P 500 swings. USDCAD sinks as S&P 500 rises and vice versa. That won’t change today or anytime time before next week’s Bank of Canada monetary policy meeting.

The BoC is expected to hike rates by 75 bps taking the policy rate to 4.0%. Such a move may undermine USDCAD briefly because the Fed will match the increase on November 2. Nevertheless, as long as the BoC remains hawkish, and WTI oil prices remain firm, the Canadian dollar should outperform against the G-10 currencies even if it slides against he US.

Oil prices sank yesterday, falling from $91.35/b to $87.91 at the end of the day, then drifted higher overnight, peaking at $89.90/b. Opec production cuts are offset by slowing global growth concerns.

The Canadian data calendar is empty.

USDCAD Technical outlook

The intraday technicals are bullish inside a 1.3750-1.3850 range. The 1.3500-1.3850 band that contained prices since September 28 remains intact.   A break above 1.3860 targets 1.4000 while a move below 1.3740 targets 1.3500. 

For today, USDCAD support is at 1.3760 and 1.3700.  Resistance is at 1.3860 and 1.3800. Today’s range: 1.3760-1.3860

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

“Someone’s gonna get hurt real bad.”  It’s a signature line from a Russel Peters stand-up routine and an apt description for financial markets today.

US Producer Prices, ex food and energy rose 7.2% y/y in September (forecast 7.3%, August 7.3%) and 0.4%m/m. The results weighed on S&P 500 futures, but the damage was minimal.  Today’ data suggests there may be an upside surprise in tomorrow’s US CPI release.

Traders are also hoping for some insight from the FOMC deliberations around the September rate hike and discussions about the “terminal rate” or even a pivot. They are unlikely to discover anything that hasn’t been said by policymakers following the meeting.

The IMF downgraded global growth to 2.7% from 2.9% blaming a worse then expected slowdown in China and the Russian invasion of Ukraine.

Bank of England (BoE) Governor Andrew Bailey is in the cross-hairs. Yesterday, Mr Bailey said he would not extend the bond buying program beyond Friday which spooked traders and evoked memories of Lehman Brothers collapse triggering the global financial crisis. US stocks plunged and the US dollar and the 10-year Treasury yield surged.

 Today, the Financial Time reported the BoE was signalling lenders it planned to extend the emergency bond-buying program beyond Friday. Not true, said the BoE, and reconfirmed the program would end as previously stated.

EURUSD churned in a 0.9683-0.9734 range and is trading at 0.9712 in NY. The single currency remains on the defensive due to divergent Fed and ECB monetary policies, poor economic growth fueling recession concerns and fall-out from the war in Ukraine.

GBPUSD chopped about in a 1.0925-1.1098 range due to the contradictions around the BoE’s bond support program. News that August GDP shrunk by 0.3% didn’t help sentiment, however, BoE Chief Economist Huw Pill did.  Mr Pill said he saw a need for a significant base rate hike in November.

USDJPY blew through the 146.00, level rising from 145.61 to 146.48 in NY which coincided with the US 10-year Treasury yield rising to 3.972% from 3.898%. Concerned Ministry of Finance and BoJ officials are not likely to intervene until after Thursday’s US inflation report.

AUDUSD traded defensively in a 0.6242-0.6287 range. RBA Assistant Governor Luci Ellis said Australia’s neutral rate is around 2.5% and that it is a “guide rail and not a goal”

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix: 7.1103, previous 7.1075

Shanghai Shenzhen CSI 300 rises 1.52% to 3784.31 previous 3727.69

Chart: USDCNY 1 month

Source: Saxo Bank