July 13, 2022

  • US CPI tops expectations-rises 9.1% y/y
  • RBNZ hikes OCR rate 0.50%, rates now above neutral.
  • US dollar opens with minor losses compared to Monday

FX at a glance:  

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3011-15, overnight range 1.3003-1.3048, close 1.3003

USDCAD continues to trade like ducks in the old carnival midway shooting game. It just moves from one side to the other without any inclination to broaden its horizons.  That may change after today’s Bank of Canada monetary policy statement at 10:00 am EDT and press conference at 11:00 a, EDT.

The BoC is widely expected to raise the overnight rate by 0.75%. If so, the news will not do anything to take USDCAD out of its 1.2880-1.3080 range.

However, Canada CPI is well above the Banks targets, and it is starting to impact longer-term inflation expectations as evidenced by the latest Business Outlook Survey.

Hiking rates by 1.0% to help prevent rising inflation concerns becoming entrenched would be an aggressive move. 

Although a 1.0% hike is rather unlikely, a hawkish statement indicating another 0.75 rate hike in September should add more resistance to the 1.3080 area.

USDCAD popped from 1.2975 to 1.3055 in the aftermath of the hotter than expected US inflation report

USDCAD is not getting much help from oil prices.  Global recession fears knocked WTI from $97.31/barrel to $93.71/b overnight, although International Energy Administration (IEA) forecasts suggesting supply tightness will worsen should limit the downside.

USDCAD technical outlook

The intraday USDCAD technicals are bullish above 1.2990, looking for a break above 1.3080 to extend gains.  A move below 1.2990 targets 1.2920.  USDCAD is rangebound in a 1.2800 1.3080 band albeit with a bullish bias while prices are above the long term trend line at 1.2500.

For Today, USDCAD support is at 1.2980 and 1.2950.  Resistance is at 1.3080 and 1.3110.  Today’s Range 1.2990-1.3080

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

The weather is hot, the days are long, and financial market volumes are thin. The summer doldrums are here, and so are the June US inflation numbers.

June CPI was scorching, rising 9.1% y/y and 1.3% in June.  The market reacted fast and furiously. S&P 500 futures plunged from 3840 to 3758 in minutes, the 10-year Treasury yield jumped to 3.05% from 2.95%, and the US dollar surged.  However, keep in mind that thin summer markets are exaggerating the price volatility.

The data didn’t do anything to ease recession fears and gave the Fed another green light for another 0.75% rate hike July 27, and probably September 21 as well.

The IMF cut its US GDP forecast to 2.3% from 2.9% in June and warned that surging inflation posed systemic risks to the US and the global economy.

EURUSD traded in a 1.007-1.0061 range, with the peak occurring in early NY trading. Prices are supported by profit-taking ahead of today’s US CPI report. Eurozone Industrial Production rose 0.8% m/m in May compared to forecasts for a 0.3% m/m increase, and German inflation was as expected at 7.6% y/y. The reports were not a factor for traders. The EURUSD technicals are bearish with a decisive break below 1.0000, targeting 0.9850. The summer doldrums are here, and trading is expected to be thin and choppy.

GBPUSD churned in a 1.1872-1.1935 range. Overnight then plunged to 1.1829 following the CPI data.

UK May GDP rose a surprising 0.5% compared to a drop of 0.3% in April, while Manufacturing and Industrial Production reports were higher than forecast. The data was overshadowed by ongoing political drama and mixed signals from the Bank of England. The GBPUSD technicals are bearish below 1.2020.

USDJPY recouped most of yesterday’s losses, rising from 136.70 to 137.25,  then extended those gains to 137.72 after the US 10-year yield jumped to 3.05% from 2.95%.

AUDUSD ground higher in a 0.6744-0.6784 range then sank to 0.6721 post US data.

NZDUSD bounced between 0.6108 and 0.6141 when the Reserve Bank of New Zealand announced a 0.50 bp hike in the Overnight Cash Rate (OCR). The OCR rate is now above neutral. The hike was expected, but the statement was ambiguous, noting near-term upside risks to inflation and medium term downside risks to growth. Prices retreated to 0.6083 following the US inflation report.

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.7282, previous 6.7287

Shanghai Shenzhen CSI 300 rose 0.18% to 4,321.46

June Trade Balance $97.94 billion (forecast $75.7 bn, Previous $78.76 bn

City of Lanzhou (population 3.7 million) locked down for 7 days due to just 143 Covid infections.

The US Navy’s Ronald Reagan Carrier Strike Group is cruising in the South China Sea. Chinese officials claim the US is violating China’s sovereignty and security.

Chart: USDCNY 1 month

Source: Yahoo Finance