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November 20, 2023
- Another quiet start to a busy but short (for some) week.
- FOMC minutes due Tuesday.
- US dollar continues to slide-AUD outperforms.
FX at a Glance
USDCAD Snapshot: open 1.3708-12, overnight range 1.3690-1.3728, close 1.3722
USDCAD traded quietly and is inching toward the top its overnight range ahead of some important domestic events this week.
The key event is the release of the inflation report on Tuesday. CPI is expected to have dropped to 3.2% y/y from 3.8% in September but rise 0.1% after dropping 0.1% m/m. The BoC’s favorite measures, CPI trim and CPI median, will be key to determining if another rate hike is likely on December 6. To that end, Governor Tiff Macklem may provide some insight when he delivers a speech entitled “The Cost of High Inflation” in Saint John, New Brunswick, at 11:45 am ET on Wednesday.
Finance Minister Chrystia Freeland delivers her fall budget on Tuesday, but that is merely a fairy tale, written for Liberal cheerleaders.
Oil prices caught a bid due to rumors that OPEC will be discussing production cuts when they meet next Sunday. Reuters quoted a Goldman Sachs analyst who said, “Our statistical model of OPEC decisions suggests that deeper cuts should not be ruled out given the fall in speculative positioning and in timespreads, and higher-than-expected inventories.” WTI rose from $75.52/b in Asia to $77.36 in NY today.”
The USDCAD technicals are bearish on an hourly chart while prices are below 1.3740, looking for a break below 1.3680 to extend losses to the 1.3640-60 zone and then 1.3610. A break above 1.3740 shift the focus to the 1.3770-1.3810 area. Only a break above 1.3810 negates the downside pressure.
Longer-term, USDCAD is stuck in a 1.3620-1.3820 range and needs to break either side to get exciting. That is unlikely to occur until after the next BoC and FOMC meetings.
For today, USDCAD support at 1.3670 and 1.3630. Resistance is at 1.3740 and 1.3740. Today’s range 1.3680-1.3750
Chart: USDCAD daily
G-10 FX recap
Planes, trains, and automobiles. It’s Thanksgiving week in the USA, and all modes of transportation will be at capacity as Americans head home for the holidays. It won’t just be turkeys getting stuffed in preparation for the feast, but two days’ worth of economic reports will be dumped on Wednesday, the day after the minutes from the November 1 FOMC are released.
Analysts are becoming more convinced that not only has the Fed finished tightening and achieved a soft landing, but also that the start of the dollar’s decline has begun. The proof is in the pumpkin pie and the US dollar index. The DXY has fallen 3.3% since the FOMC meeting, and the US 10-year Treasury yield has dropped from 4.90% to 4.45%.
Chicago Fed President Austan Goolsbee appears to be encouraging that view. On Friday, he said that if housing price pressures ease as expected, then we would be on the path to get to 2%, and that’s what I call the golden path — no recession, and it gets down — but that housing inflation is the thing we should really keep an eye on,” according to Reuters.
However, other analysts point out that the moves may be exaggerated, and that the latest IMM FX positioning data doesn’t support the conclusions.
Asian equity market activity was muted. Japan’s Nikkei 225 index fell 0.59% while Australia’s ASX 200 gained 0.17%. European bourses are flitting around flat, as are S&P 500 futures.
EURUSD drifted with a modestly bullish bias in a 1.0897-1.0941 range. Traders ignored German PPI data (-11% y/y in October vs -14.7% in September), which was largely due to “base effects.” Traders were patiently awaiting Tuesday’s FOMC minutes and looking ahead to Thursday’s Manufacturing PMI data.
GBPUSD is in the middle of its 1.2446-1.2510 range. Support from widespread US dollar weakness is being eroded due to caution ahead of the Chancellor’s Autumn Statement on Wednesday and Thursday’s PMI data.
USDJPY fell to 148.10 from 150.00 before rebounding to 149.48 in NY. The sell-off was sparked by a report that Pimco has been selling USDJPY for a few months because they believe that the Bank of Japana will be tightening monetary policy.
AUDUSD is the best performing major G-10 currency overnight and it is near the top of its overnight 0.6501-0.6563 range. Prices are underpinned by expectations that the Fed tightening cycle is over while the RBA may have another hike left.
NZDUSD rallied alongside its antipodean cousin, rising from 0.5983 to 0.6043. Kiwi may underperform against the Aussie because analysts believe the RBNZ is on hold while the RBA has scope to tighten.
The US and Canadian economic calendars are empty.
FX high, low, open
PBoC fix: today 7.1612, expected 7.2320, previous 7.1728.
Shanghai Shenzhen CSI 300 rose 0.23% to 3576.32.
PBoC leaves 1 and 5 year Loan Prime Rate unchanged at 3.45% and 4.20%, respectively.
Chart: USDCNY (onshore) vs USDCNH (offshore) 3 months