Photo:Bing Image Creator

August 17, 2023

  • Hawkish sounding FOMC minutes roil markets.
  • China’s currency woes continue amidst questionable State data.
  • USD dollar firms on rate hike chatter

FX at a Glance

Source: IFXA/R

USDCAD Snapshot:  open: 1.3517-21, overnight range: 1.3519-1.3552, close  1.3532.

USDCAD rallied following the FOMC minutes but the rallied stalled at the 1.3550 resistance area. The gains were all due to widespread demand for US dollars due to hopes of higher interest rates, while sliding oil prices played a small role.  The reality is that the Canadian dollar is merely baggage on the US dollar train. For now, domestic influences have just a limited impact on currency moves.

WTI oil prices dropped from $83.16/b on Monday to $78.97/bb overnight, before rebounding to $80.03 in NY.  Crude is trading defensively due to China’s growth concerns but supported by Saudi Arabia’s production cuts.

There are no domestic data releases of note today.

USDCAD Technicals

The USDCAD technicals are bullish above 1.3450 on a four hour chart and looking for a decisive break above 1.3590 to extend gains to 1.3660 then 1.3800.  A break below 1.3450 targets 1.3380 but only a move below 1.3380 negates the risk for a rally to 1.3680.

For today, USDCAD support is at 1.3480 and 1.3450.  Resistance is at 1.3550 and 1.3580. Today’s range 1.3480-1.3550

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap

The US dollar rallied, equities dropped, and the US 10-year Treasury yield reached a new peak for this tightening cycle after the FOMC minutes were considered hawkish. The minutes revealed that “most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy.”

Fed futures traders do not believe it. They believe that the 25 basis points rate hike on July 26 was the last rate hike and that the first rate cut will be in May 2024.

Comments from some Fed officials since the FOMC meeting appear to agree with the futures traders’ outlook. On August 8, Philadelphia Fed President Patrick Harker (voter) said, “I believe we may be at the point where we can be patient and hold rates steady and let the monetary policy actions we have taken do their work.” Atlanta Fed President Raphael Bostic concurs. He said, “I think we are in a phase where there is some risk of us overtightening.”

However, voters Michelle Bowman and Neel Kashkari refuse to rule out further rate hikes.

The hawkish-sounding bias of the FOMC minutes, coupled with ongoing China growth concerns, soured risk sentiment overnight. Asian equity indexes closed in the red, led by a 0.68% dip in the Australian ASX 200. European bourses opened in negative territory and are drifting close to flat in early NY trading. S&P 500 futures are slightly higher.

This morning’s US data (jobless claims and Philadelphia Fed Manufacturing) had very little impact on markets, which continue to digest the FOMC minutes.

EURUSD sank following the FOMC minutes then consolidated the losses overnight, trading in a 1.0862 to 1.0918 range. Traders ignored the news that Norway’s Norges Bank hiked rates by 25 basis points to 4.00% as it was expected. The intraday EURUSD technicals are bearish below 1.0930.

GBPUSD is at the top of its, 1.2703-1.2769 range, fully recovering its losses after the FOMC minutes. Prices are supported by renewed expectations for Bank of England rate hikes and by EURGBP selling pressure. The GBPUSD technicals are bullish above 1.2630, looking for a break above 1.2770 to extend gains to 1.2890.

USDJPY rallied to 146.55 in Asia in the wake of the FOMC minutes but has retreated steadily to 145.67 in NY. Prices are underpinned by the 10-year Treasury yield rising to 4.30% today, while traders remain cautious due to fears of BoJ intervention.

AUDUSD traded negatively in a range of 0.6365 to 0.6426 overnight and is in the middle of that band in early NY. Weaker than expected July employment (actual -14,600 vs forecast +15,000) and a jump in the unemployment rate to 3.7% from 3.5% drove prices to the low. Prices were also on the defensive due to China’s growth concerns. Analysts are suggesting that today’s data, combined with a series of weak reports earlier, argue that the RBA’s tightening cycle is over.

FX high, low, close

Source: Saxo Bank

China Snapshot

Bank of China Fix: today 7.2076 , expected 7.3047, previous 7.1986.

Shanghai Shenzhen CSI 300 rose 0.33% to 3831.10.

USDCNY and USDCNH supported by the worsening economic outlook,  ongoing property developer and wealth manager issues alongside recent reductions in GDP forecasts by major banks.

Bloomberg reports that data from property agents and private developers indicates that China’s Housing slump is far worse than what the official data shows.

State owned banks buying yuan, selling US dollars to slow the USDCNY rally.

Chart: USDCNY 1 month

Source: Bloomberg