Photo: Matt Groening

June 13, 2023

  • Headline CPI fell to 4.0% y/y (previous 4.9%
  • PboC trims 7-day reverse repo rate.
  • US dollar opens mixed overnight, falls after CPI.

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3356-60, overnight range 1.3321-1.3377, close 1.3368

USDCAD remained inside its well defined range overnight and even after the weaker than expected US inflation report. The currency pair will likely drift lower alongside gains in the S&P 500 index but range-busting moves are not likely until after the FOMC meeting on Wednesday.

WTI fell to $66.80/b from $70.09 on Monday but clawed back some of those losses and rose to $69.00/b in early NY.  Traders are hoping China cuts its longer term interest rates and pumps additional fiscal stimulus into its economy to boost domestic growth and oil demand.

There are no Canadian economic reports today leaving USDCAD direction to be determined by US dollar sentiment.

USDCAD Technical Outlook

The intraday USDCAD technicals are bearish below 1.3380 and looking for a break below the 1.3290-1.3300 area to extend losses to 1.3250, then 1.3220.  A move above 1.3380 targets 1.3470 then 1.3560.

Longer term, the USDCAD uptrend that began in May 2021 is intact while prices are above 1.2990. USDCAD peaked at 1.3980 in October 2022 and has been consolidating the gains in a 1.3200-1.3880 range ever since.

Today’s range 1.3290-1.3390

Chart: USDCAD weekly

Source: Saxo Bank

G-10 FX recap and outlook  

“Everything is coming up Milhouse.” China trimmed some rates and is expected to cut its longer-term rates later this week, alongside expected new fiscal stimulus from the government. The move will be designed to bolster domestic growth but will also serve to boost global growth.

The US May Consumer Price Index (CPI) rose by 0.1% month-over-month (m/m), compared to 0.4% in April, while CPI excluding food and energy rose by 5.3% year-over-year (y/y), compared to 5.5% in May.

US stocks have entered a “bull market,” and further gains are expected. That’s because today’s inflation data will ensure the Fed skips a rate hike in June, and tomorrow’s FOMC meeting could signal that the rate hike cycle is ending.

EURUSD is bid and rose from 1.0756 in Asia to 1.0823 after the CPI data. Traders ignored German CPI data (actual 6.1% y/y) as it was expected, and traders await the outcome of Thursday’s ECB meeting. The ECB is expected to raise rates by 25 basis points.

GBPUSD is recouping yesterday’s losses and has risen to 1.2604 from 1.2511 in Asia. The gains were fueled by a robust employment report, which showed the unemployment rate dipping to 3.8% from 3.9%, while average earnings, including bonuses, rose by 6.5% (3-month, y/y), up from 6.1%. The results suggest the BoE will maintain a hawkish interest rate bias.

USDJPY bounced in a 139.34-139.66 band, with pricing tracking US dollar sentiment.

AUDUSD rose from 0.6739 to 0.6798 due to optimism about possible new fiscal stimulus from China and broad US dollar weakness following the lower-than-expected US CPI data. Prices were also supported by improvements in the Westpac May Business Conditions and Business Confidence indexes.

FX open, high, low, previous close as of 6:00 am ET

Source: Bloomberg

China Snapshot

Bank of China Fix: 7.1498, previous 7.1212.

Shanghai Shenzhen CSI 300 rose 0.53% to 3864.91.

The PBoC trimmed its 7-day reverse repo rate to 1.9% from 2.0%. The move raised speculation for cuts to longer term rates later this week.

Chart: USDCNY 6 month

Source: Bloomberg