January 23, 2024

  • BoJ delivers-nothing, as expected.
  • Markets on hold awaiting central banks and actionable data.
  • US dollar trading in narrow ranges.

FX at a glance

Source: IFXA

USDCAD Snapshot: open 1.3474-78, overnight range 1.3453-1.3486, close 1.3479.

USDCAD dropped yesterday, coinciding with early gains in the S&P 500 index. However, when equities retreated, USDCAD rallied, rising from the low of 1.3416 to close at 1.3479. This price action further evidences that USDCAD’s direction is tied to broad risk sentiment, with oil prices and Bank of Canada talk taking seats at the very back of the bus.

BoC Governor Tiff Macklem may sound hawkish and warn of further rate hikes because of the December increase in inflation. If he does, USDCAD may drop toward support in the 1.3380-1.3400 area. However, the move will likely be short-lived. Traders have not priced in any rate increases for 2024 and expect 75 bps of rate cuts by September. Additionally, there is enough data to suggest the Canadian economy is likely in a recession.

Oil prices climbed from $73.81 to $75.15 on news of new coordinated UK and US military strikes in Yemen and reports that Ukrainian drones struck a Russian oil terminal. However, prices retreated after US Treasury yields inched higher.

Canada’s new housing price index data is ahead.

USDCAD Technicals:

The intraday USDCAD technicals are bullish. Today’s rally back above 1.3470 snapped the intraday downtrend from 1.3550 and targets 1.3510 (hourly chart). A move below 1.3450 targets 1.3340, then 1.3380. USDCAD is in an uptrend channel from January 2, with the base at 1.3420 and the peak at 1.3590. For today, USDCAD support is at 1.3450 and 1.3420. Resistance is at 1.3490 and 1.3550. Today’s range is 1.3440-1.3520.

Chart: USDCAD 4 hour

Source: DailyFX      

G-10 FX recap

Traders do not have much enthusiasm this morning. They appear desensitized to news of missile strikes, civilian deaths, and US and UK bombing Yemen in various parts of the world. The reality of another Trump presidency is met with a shrug of the shoulders, and today’s lack of actionable US data will keep traders sidelined.

Asian equity indexes closed mixed. Australia’s ASX 200 gained 0.53% while Japan’s Nikkei 225 index was flat. Hong Kong’s Hang Seng rallied 2.6% thanks to China’s plans to support equities. European bourses are underwater, led by a 0.19% dip in the French CAC 40 index. S&P 500 futures are unchanged.

EURUSD is near the bottom of its 1.0867-1.0907 overnight range. Prices popped higher in Asia due to improved risk sentiment from China’s equity market stimulus but fell when US Treasury yields climbed from 4.10% to 4.13%. ECB President Christine Lagarde did not get a favorable review from bank employees. More than 53% of respondents said she wasn’t the right person for the job, mainly because she is too political and doesn’t spend enough time on monetary policy.

GBPUSD rose then fell in a 1.2703-1.2748 range, with prices rising on improved risk sentiment due to talk about UK tax cuts in the next budget and on the heels of China’s support for domestic equity markets. However, the gains were erased when US Treasury yields moved higher.

USDJPY whip-sawed in a 146.99-148.55 range overnight and is trading in New York at 147.88. The BoJ left monetary policy unchanged as expected, partly because of uncertainty about the economic impact from the New Year’s Day earthquake. The overnight rate is -0.1%, and the YCC is 0-1.0%. Governor Kazuo Ueda hinted at a policy change when he admitted that inflation was gradually nearing the 2.0% target.

AUDUSD seesawed in a 0.6565-0.6613 range. The NAB Business conditions survey eased in December, which NAB suggested “this slowing is beginning to translate into improvement in inflation indicators. Nonetheless, businesses remain cautious about the outlook, with growth likely to remain subdued for the time being.”

NZDUSD traded defensively in a 0.6066-0.6118 range ahead of tomorrow’s inflation report. CPI is expected to have dropped to 4.7% y/y in Q4, down from 5.6%.

The US data calendar is empty.

FX high, low, open (as of 6:00 am ET)

Source: Investing.com

China Snapshot

PBoC fix: today 7.1107, expected 7.2033, previous 7.1105.

Shanghai Shenzhen CSI 300 rose 0.40%  to 3231.93.

Stocks rise on talk China is planning a $278 billion stabilization fund for equities. The plan is for offshore accounts of state owned enterprises to buy shares onshore through Hong Kong, according to Bloomberg.

Chart: USDCNY and USDCNH daily

Source: Investing.com