March 22, 2022

  • Fed Chair Powell warns of more than one 50 bp rate hike in 2022
  • Oil consolidating gains as Russia oil ban talk continues
  • US dollar opens mixed. AUD, NZD outperform, JPY sinks

FX at a Glance 24 hours

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2611-15, overnight range-1.2573-1.2622, close 1.2593

USDCAD whip-sawed in a choppy overnight session with prices tracking S&P 500 futures then switching to WTI oil and dropping to session lows in NY trading. 

USDCAD support from Fed Chair Powell’s hawkish, inflation-fighting rhetoric is waning in the wake of higher crude prices.  

However, losses may be limited on widening US/CAD interest rate differentials.  US CPI at 7.9% y/y, is substantially higher than Canada CPI (5.7% y/y) which suggests the Fed be hiking interest rates far more aggressively than the Bank of Canada.

Nevertheless, soaring oil prices may limit USDCAD gains suggesting more USDCAD rang trading ahead.

WTI touched $115.05/b overnight after closing at $112.54/b, then retreated to $109.47/b.  Traders are concerned the EU will embargo all Russian oil and according to the Saudi Aramco CEO, the lost supply cannot be easily replaced.

USDCAD technical outlook

The USDCAD intraday technicals are bearish below 1.2670 looking for a break below support in the 1.2550 level to extend losses toward 1.2500.  A move above 1.2670 would negate the downward pressure and suggest further 1.2600-1.2800 consolidation.

Longer term, the failure to break above 1.3000 and the subsequent drop below 1.2650 shifts the focus to the 200-day moving average (1.2606) and the June 2021 uptrend line in the 1.2530-50 area.  A break below 1.2530 targets 1.2430.

For today, USDCAD support is at 1.2570 and 1.2540.  Resistance is at 1.2620 and 1.2660. Today’s Range 1.2540-1.2630

Chart USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

“Faster than a soaring CPI, more powerful than an outraged woke, Twitter troll, able to leap logic steps in a single bound.  Look, in Washington, DC, It’s The Inflation Fightingman.”

Fed Chair Jerome Powell, mild-mannered adherent to the Transitory Inflation creed, revealed himself to be an inflation-fighting superhero.

The man who, as recently as December, insisted inflation would return to targeted levels in the second half of 2022 has changed his tune.  He is now promising to aggressively hike interest rates with a goal of bringing inflation down to the 2.0% y/y level in the next three years.

Analysts at Goldman Sachs are forecasting 0.50% rate hikes at the May and June FOMC meetings.

Treasury yields soared after Powell’s speech rising from 2.19% to 2.357% in early NY trading.

Powell’s hawkish comments did not faze Asia equity traders.  The Nikkei 225 index closed 1.43% higher, supported by a weaker currency.

Hong Kong’s Hang Seng index jumped 3.15% partly because Alibaba’s $25 billion stock buy-back.   Higher commodity prices underpinned Australia’s ASX 200.

European equity traders ignore war news, and US rate hike risks, with the German DAX index gaining 0.81%.  Gold prices are modestly lower in early NY trading.

EURUSD whip-sawed but prices have returned to the top of the overnight 1.0962-1.1034 trading range.   ECB policymaker Luis de Guindos said that although high energy prices are pushing inflation to recent highs, there is no evidence that inflation expectations are moving higher.”

Powell’s interest rate outlook, and President Biden’s warning about Russia’s chemical weapon plans, combined with the dovish ECB outlook, suggest EURUSD gains are limited.

GBPUSD rallied from 1.3122-1.3246 in anticipation of a new government stimulus plan being announced Chancellor Rishi Sunak in Wednesday’s Spring Statement.

USDJPY soared, rising from 119.45 to 121.02 in early NY trading before easing to 120.58, coinciding with the spike in the US 10-year Treasury yield to 2.35%.  The USDJPY gains are exacerbated by the divergent BoJ and Fed monetary policy outlooks

AUDUSD and NZDUSD are bid, supported by higher commodity prices.

There are plenty of Fed speakers on tap today.

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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3664, previous 6.3677

Shanghai Shenzhen CSI 300 fell 0.06% to 4,255.30

US State Department imposes visa restrictions on Chinese officials due to their treatment of ethnic and religious minority group.

China’s Foreign Minister says China will respond with reciprocal bans.

Chart: China 1 month

Source: Saxo Bank