- Hawkish squawks from ECB doves lift EUR
- Canada March inflation forecast at 6.1% y/y
- EUR leads G-10 currencies higher vs US dollar
FX change at a glance: 24 hours
Source: IFXA Ltd/RP
USDCAD Snapshot: open 1.2472-76, overnight range 1.2460-1.2500, previous close 1.2495
USDCAD slid 1.2% yesterday following the scorching CPI report. Canada inflation rose 6.7% in March, well above the 6.1% expected, and the biggest one-month jump since January 1991. Even worse, the gains were widespread across the eight major components.
BoC Governor Tiff Macklem said that they take fighting inflation seriously and following the CPI release, economists pencilled in a 50bp rate hike at the June 1 and July 13 meetings.
USDCAD was already sliding ahead of the data, then accelerated lower on the release, dropping to 1.2470, then spent the overnight session consolidating in a 1.2460-1.2500 band.
The Loonie question is “Does USDCAD have further to fall? USDCAD bears think so, citing seasonal pressures, and high oil prices that have the prospect for further gains in 2022. They are also leaning toward a more hawkish than expected Bank of Canada rate hike policy.
USDCAD bulls are not convinced the currency has much further downside. They note that USDCAD direction has not been dictated by domestic influences but by broad US dollar sentiment. The risk of sharply rising US rates driving S&P 500 index lower and sparking widespread risk aversion will limit USDCAD downside. Fall-out from the Russian invasion of Ukraine will linger long after that shot is fired, contributing to longer-term supply chain disruptions. In addition, geopolitical tensions elsewhere will keep the greenback in demand.
USDCAD technical outlook
The intraday and medium term technicals are bearish, looking for a break below 1.2440 to extend losses to 1.2280, a level which contained downside moves since July 2021. A break above 1.2510 suggests further 1.2440-1.2570 consolidation but only a move above 1.2630 negates the downside pressure.
For today, USDCAD support is at 1.2440 and 1.2410. Resistance is at 1.2510 and 1.2560. Today’s Range 1.2450-1.2510
Chart: USDCAD 4 hour
Source: Saxo Bank
G-10 FX recap and outlook
US weekly jobless claims were 184,000 for the week ending April 16, but close enough to guesses and last week’s results to be ignored. The Philadelphia Fed Manufacturing Survey dipped to 17.6 from 27.4 which just offset the previous months increase.
FX markets were lackluster in Asia, but that changed in Europe following hawkish words from ECB policymakers. Luis de Guindos, a noted policy dove, channelled his inner-hawk. He said the ECB should be able to end asset purchases and raise interest rates in July.
His colleague Bank of Belgium Governor Pierre Wunsch was a tad less dramatic. He said, “Without any really bad news coming from that front, hiking by the end of this year to zero or slightly positive territory for me would be a no brainer.”
EURUSD soared following the remarks rising from 1.0825 to 1.0935, then stalled after ECB President Christine Lagarde chimed in.
She muddled the message saying, “In the current conditions of high uncertainty, we will maintain optionality, gradualism, and flexibility in the conduct of monetary policy. We will take whatever action is needed to fulfil the ECB’s mandate to pursue price stability and to contribute to safeguarding financial stability.”
Nevertheless, EURUSD remains underpinned. Eurostat reported “the euro area annual inflation rate was 7.4% in March 2022, up from 5.9% in February.
Elsewhere, the 10-year US Treasury yield consolidate losses after touching 2.975% on Tuesday and spent the overnight session in a 2.844%-2.898% range. That helped S&P 500 futures rise 0.70% and WTI oil prices climb 0.82%. Gold is slightly lower, trading at $1,944.43.
Elon Musk is a happy camper. He is supposedly banking a $23.0 billion bonus after Tesla’s Q1 results beat performance metrics. But life didn’t serve up S’mors to Bill Ackman of Pershing Square Holdings. He reportedly dropped $400 million when he sold Netflix shares.
GBPUSD rallied from 1.3044-1.3089 with gains slowed by EURGBP demand. GBPUSD benefitted from broad US dollar weakness
USDJPY traded lower, falling from 128.61 to 127.63 before inching higher to 128.00 in NY. The Japanese government is getting ready to announce more relief measures.
AUDUSD firmed on the back of broad US dollar weakness, rising to 0.7457 from 0.7423. NZDUSD rose from 0.6769 to0.6808, getting added boost from inflation data. Stats NZ said, “the consumers price index increased 6.9 percent in the March 2022 quarter compared with the March 2021 quarter, the largest movement since a 7.6 percent annual increase in the year to the June 1990 quarter.”
Chart: EURUSD 30 minute
Source: Saxo Bank
FX open, high, low, previous close as of 6:00 am ET
Chart: Saxo Bank
Today’s Bank of China Fix 6.4098 (Previous Fix 6.3996)
Shanghai Shenzhen CSI 300 fell 1.84% to 3,995.83
USDCNY rallies due to diverging PBoC and Fed interest rate outlooks. China is cutting rates while US rates set to rise sharply.
Chart: China 1 month
Source: Yahoo Finance