Photo: Bing AI
September 26, 2023
- Risk sentiment sours on higher US Treasury yields.
- Oil prices retreat from yesterdays peak.
- US dollar trades with a bid.
FX at a Glance
USDCAD Snapshot: open: 1.3490-94, overnight range: 1.3449-1.3505, close 1.3454
USDCAD traders are ignoring the risk of higher Canadian interest rates and reacting to modest risk aversion fueling broad USD dollar demand.
Former Bank of Canada Governor David Dodge said that the days of a real rate of interest at almost zero are long gone and central banks will need to keep rates higher to control inflation. That means Canada will see higher real interest rates and less money for government expenditures.
WTI oil prices are off the boil, falling from $90.83 yesterday to $88.20/b in Europe before rising to $88.97 /b in NY. The UK Guardian reported that the US is turning a blind eye to countries violating Russia oil sanctions. They pointed out that China imported 1 million barrels/day of oil from Malaysia which is impressive because Malaysia only produces 521,000 b/d. The article noted that Iran ‘s monthly exports (which is under sanctions) reached a 5-year high in August.
The Canadian economic calendar is empty.
The intraday USDCAD technicals are unchanged from yesterday. They are bullish while trading above 1.3440 and looking for a break above 1.3520 to target 1.3650. However, a move below 1.3410 would turn the outlook bearish and suggest further losses to 1.3210.
The uptrend line from April at 1.2420 is intact while prices are above 1.3210.
For today, USDCAD support is at 1.3450 and 1.3420. Resistance is at 1.3520 and 1.3550. Today’s range 1.3450-1.3520
Chart: USDCAD daily
G-10 FX recap
The FX focus has shifted to rising US Treasury yields, which gave the greenback a bid. The US 10-year Treasury yield cracked above 4.50% yesterday from a low of 4.30%, then climbed to 4.566% overnight before dipping to 4.517% in NY.
Bond traders are becoming convinced that the Fed may raise rates again and then keep them there for a prolonged period. JPMorgan CEO Jamie Dimon thinks it could be worse and warned that the world is not prepared for 7.0% rates and stagflation. He pointed out that rates rising from 5.0% to 7.0% would be far more painful to the economy than the increase from 3.0% to 5.0%.
The US dollar extended its recent gains, albeit modestly, and opened today with gains against the G-10 majors, except for NZD which is flat.
It’s a no-news day, if you ignore the Russia/Ukraine war, Chinese belligerence against Taiwan and in the South China Sea, and the talk about a US government shutdown.
However, without any fresh market-moving catalysts, today’s second-tier US data (Housing Price Index, Case-Shiller Home Price Index, and New Home Sales) may spur some action.
EURUSD bottomed out at 1.0569 in Asia, coinciding with the US 10-year Treasury yield rising to 4.566%, then rallied to 1.0604 into the NY opening. Traders did not have any new economic data to worry about, leaving EURUSD direction at the whim of FX technicals which became more bearish with the move below 1.0600.
GBPUSD tracked EURUSD moves, falling from 1.2216 to 1.2167, then grinding back to 1.2191 in NY. The short-term GBPUSD technicals are bearish and targeting 1.2000, although losses may be hampered by lingering risks for one more Bank of England rate hike.
USDJPY climbed to 149.19 in Asia on the back of higher US Treasury yields but quickly scampered down to 148.70 on another intervention threat. Finance Minister Shunichi Suzuki said he is “closely watching FX moves with a great sense of urgency.” Thousands of yen traders said they were doing the same thing.
AUDUSD traded in a 0.6388-0.6431 range, with prices weighed down by broad US dollar demand and ongoing concerns about the health of the Chinese economy due to the latest real estate developer woes.
There are no top-tier US economic reports today.
Chart of the Day: US 10-year Treasury yield-daily
FX high, low, open
Bank of China Fix: today unchanged at 7.1727, expected 7.3174, previous 7.1729.
Shanghai Shenzhen CSI 300 fell 0.58% to 3692.89.
Chart: USDCNY 1 month