Source: HDClipart

April 28, 2022

  • BoJ maintains ultra-dovish policy-USDJPY soars
  • Stock markets ignore Russian threats and bluster
  • USD extends gains, CAD outperforms

FX change at a glance: 24 hours

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2834-38, overnight range 1.2800-1.2878, previous close 1.2817

USDCAD traded choppily overnight but opened in NY unchanged.  The currency was sideswiped by broad-based US dollar demand sinking the Japanese yen and Chinese yuan, but rising US stock futures helped settle USDCAD.

BoC Governor Tiff Macklem told the Senate Banking Committee that the economy is overheating, creating inflation pressure. He added that the Bank needs to push up rates rather quickly.  His comments were essentially the same he made Tuesday and at the MPR press conference.  Even so, they mean that BoC rate hikes will match, or exceed those of the Fed, which should act as a drag on USDCAD gains.

WTI oil prices are steady in a $100.17-$103.01 range.  Prices are supported by fears that supply constraints increase because of Opec production difficulties and the Russian sanctions. WTI is undermined by concerns of slowing global demand as China’s economy struggles in the face of a Covid outbreak.

USDDCAD dropped from an early NY session peak of 1.2878 to 1.2835 following the release of US Q1 GDP data, which fell 1.4% y/y.  The drop was bigger than expected but the report was predicted to be soft as the impact from government stimulus faded.

USD clawed back some of the losses, post GDP, in part because the US weekly jobless claims data showed a 5,000 decline in claims.

USDCAD technical outlook  

The USDCAD technicals are bullish with a steep uptrend intact above 1.2790 keeping pressure on the 1.2950-1.3030 resistance zone.  However, Bollinger band and RSI studies warn that the up-move is becoming overdone and USDCAD is vulnerable to sharp correction. A break below 1.2790 suggests further losses to1.2570.

For today, USDCAD support is at 1.2790 and 1.2750.  Resistance is at 1.2870 and 1.2910.  Today’s Range 1.2810-1.2890

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

Covid fatigue meant that people were sick and tired of being bombarded with infection stats, death counts, and contradictory rules and regulations from power-mad bureaucrats.  Equity traders are exhibiting signs of “Russia fatigue,” blissfully ignoring increasingly inflammatory comments from Russian officials while focused on Q1 earnings reports.

Asia equity indexes closed with gains, helped by the robust earnings data from Meta and a dovish BoJ monetary policy meeting.  The Nikkei gained 1.75%, and Australia’s ASX 200 rose 1.22%.  European traders joined the party, and the French CAC and German DAX indexes are 1.42% and 1.22% higher, respectively.  S&P and DJIA futures are higher, indicating a positive open on Wall Street.  Gold and oil prices firmed.  The 10-year US Treasury yield is 2.809%, down from 2.838% in Asia.

EURUSD cracked below the 1.0500 level while trading in a 1.0482-1.0564 range overnight.  The single currency is weighed down by EU growth concerns, ultra-accommodative ECB monetary policy, and fallout from the Russian invasion of Ukraine.  In addition, month-end demand for US dollars also weighs on the currency.

EURUSD got a bit of support after Sweden’s Riksbank surprised markets and raised interest rates to 0.25% from 0.0%.  Analysts expect another two or three hikes in 2022.  The intraday technicals are bearish below 1.0550.

GBPUSD is trading near the bottom of its 1.2463-1.2569 range due to broad US dollar demand from month-end portfolio rebalancing flows.  The Bank of England is expected to hike rates 0.25% on May 5, but recent data suggests they will downgrade their economic growth forecasts.  The break below 1.2550 risks further downside to 1.2250.

USDJPY soared from 128.35 to 131.01 following another ultra-dovish Bank of Japan monetary policy statement.  The BoJ left rates unchanged at -0.1% and plans to aggressively use YCC to cap the 10-year JGB yield at 0.25%.  They downgraded their 2022 growth forecast to 2.1% from 2.8%.

AUDUSD and NZDUSD suffered from broad US dollar strength and the PBoC decision to allow the Chinese yuan to weaken.

Chart: USDJPY 15 minute

Source: Saxo Bank

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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.5614 (Previous Fix 6.5598)

Shanghai Shenzhen CSI 300 rose 0.66% to 3,921.11

USDCNY and USDCNH are soaring due to broad US dollar strength, particularly USDJPY.  Analysts are forecasting much weaker yuan ahead, as China’s economy slows due to COVID.

Chart: China 1 month

Source: Yahoo Finance