June 22, 2023
- SNB and Norges Bank raise interest rates.
- Bank of England surprises with a 50 bp hike.
- US dollar opens weaker after Fed Powell’s comments.
FX at a glance
Source: IFXA Ltd/
USDCAD Snapshot: open 1.3145-49, overnight range 1.3141-1.3167, close 1.3165
USDCAD took it on the chin yesterday and fell from 1.3244 in Europe to close at 1.3164 with a big assist coming from Fed Chair Jerome Powell and his colleagues.
Mr Powell’s comments to Congress served to put a lid on the benchmark US fed funds rate of 5.75%. However, comments from Chicago Fed President Austan Goolsbee, and noted insider-trader Atlanta Fed President Bostic suggested that even one more rate increase was not a sure thing. Meanwhile, the Bank of Canada is expected to raise rates to 5.0% in July.
WTI oil prices climbed from $71.15/b to $72,62/b then erased the gains by the NY open. Prices are supported by hopes for increased global demand following a new China stimulus program.
The Canadian economy is more resilient than what the BoC expected as evidenced by yesterday’s stronger than expected retail sales data for April (actual 1.1% m/m vs forecast 0.2%). That suggests that inflation may struggle to fall to 3.0% by the summer, (BoC forecast) which will keep the upward pressure on domestic interest rates.
If so, the BoC overnight rate will soon match that of the Fed and weigh on USDCAD.
USDCAD Technical Outlook
The intraday USDCAD technicals are bearish below 1.3190 looking for a break below 1.3140 to extend losses to 1.2990-1.3000. The daily chart suggests the drop will be raid as there is not much support to slow a slide.
The 1.2990-1.3000 area is significant support which stems from the uptrend line from the end of May 2021 as well as “round number” psychological support. It is also the Fibonacci 50% retracement level of the May 2021-October 2022 range.
For today, USDCAD support is at 1.3140 and 1.3090. Resistance is at 1.3190 and 1.3240
Today’s range 1.3110-1.3190
Chart: USDCAD daily
Source: Saxo Bank
G-10 FX recap and outlook
Comedian Steven Wright famously said, “There’s a fine line between fishing and just standing on the shore like an idiot.” The world’s central bankers have come to a similar conclusion about inflation: “There’s a fine line between fighting inflation and just standing around talking about it like idiots.”
Central banks in the Philippines, Indonesia, and Brazil are the bankers on the shore; they left their benchmark rates unchanged. However, the Bank of England, Swiss National Bank, and Norway’s Norges Bank took action and raised rates.
Equity traders were not very enamored by Fed Chair Jerome Powell’s testimony to the House Financial Services Committee. He was asked about the two rate hikes suggested by the dot-plot graph and responded, “That’s a pretty good guess of what will happen.” That caught the “one and done” camp offside, and the Nasdaq fell 1.21%, while the S&P 500 index dropped 0.52%.
Asian equity markets followed Wall Street lower, except for the Hong Kong Hang Seng and mainland China indexes, which were closed for a holiday. Australia’s ASX 200 fell 1.63%.
European bourses traded negatively in the wake of rate hikes from the SNB and Norges Bank. The French CAC 40 index dropped 1.26%, while the German DAX fell 0.56%.
The greenback traded defensively mainly because traders think the worst of the Fed rate hikes is behind them, while the other G-10 central banks play catch-up to the Fed.
US economic data was a tad weaker than expected. Weekly jobless claims at 264,000 were unchanged from the upwardly revised number last week while the Chicago Fed National Activity index dipped to -0.15 from 0.14 previously. The results support arguments that the US economy is slowing and the Fed may not need to hike as aggressively as indicated by the dot-plot.
EURUSD rallied after Powell’s comments and extended the gains overnight, rising from 1.0980 to 1.1007. The gains saw additional support after the SNB raised rates by 25 bps to 1.75% and updated inflation forecasts, signaling more hikes were likely. The topside was capped ahead of today’s Bank of England meeting. The size of the rate hike will determine the direction, with a 50 bp bump fueling EURGBP selling.
GBPUSD spiked then dropped in a 1.2739-1.2840 range after the Bank of England surprised markets and hiked rates by 50 bps to 5.0%, a 15-year high. The move follows on the heels of Wednesday’s hotter-than-expected UK inflation report. Prices settled back to pre-announcement levels as traders digested the decision, which was not unanimous. Two members voted to leave rates unchanged.
USDJPY traded in a 141.62-142.09 range, with comments from BoJ policymaker Asahi Noguchi more than offsetting broad US dollar weakness. Mr. Noguchi claimed that raising the yield curve control (YCC) cap would delay the recovery.
AUDUSD is near the top of its 0.6759-0.6805 range, but the gains lag those of its commodity bloc counterparts. AUDUSD continues to suffer from the RBA’s dovish tilt and China’s failure to announce a new stimulus program.
Today’s US data includes weekly jobless claims, existing home sales, and the Chicago Fed National Activity index.
FX open, high, low, previous close as of 6:00 am ET
Closed for Dragon Boat Festival
Bank of China Fix: 7.1795, previous 7.1596
Shanghai Shenzhen CSI 300 fell 1.53% to 3864.03.
Chart: USDCNY 6 month