The greenback was already heading downhill when the US Treasury Secretary Steven Mnuchin kicked it into hyperdrive. He said a weaker dollar was good for the US. FX traders did their damnedest to give him one.
GBPUSD soared to 1.4117 in Europe after closing in New York at 1.3997. That move got an extra kick form a modestly better than expected UK employment report. The unemployment rate was unchanged (4.3%) but average household income ticked up. Sterling traders are blissfully unconcerned with the risk that Brexit negotiations could turn nasty.
EURUSD rallied but to a lesser extent, rising from 1.2291 to 1.2355. Mixed Eurozone PMI data and caution ahead of Thursday’s ECB meeting slowed the upside rally. USDCHF dropped in concert with the higher Euro.
USDJPY tanked, falling from 110.32 to 109.51 by this morning’s New York open. Broad dollar weakness, scepticism around the durability of the Bank of Japan’s super-easy monetary policy, stop-loss selling on the break of support at 110.00 and Mnuchins comments weighed on the currency pair.
The antipodeans currencies rallied with AUDUSD moves outpacing those of NZDUSD. Kiwi gains may have been tempered by concerns ahead of New Zealand inflation data due at the end of the day in New York.
Oil prices were steady with gains capped by minor concern over yesterday’s surprise 4.7 million barrel rise in crude inventories. Gold prices didn’t have any such constraints and climbed from $1,339.82/oz to $1,350.46/oz.
USDCAD plunged, triggering stops below 1.2370, undermined by the Mnuchin comments and the US dollar weakness. The sustainability of additional USDCAD losses is questionable. Canada is not getting any benefit from the higher WTI oil prices. Canada’s chief oil export is Western Canada Select (WCS) As of January 22, WCS was trading at a CAD $32.90 discount or US $26.67 at current levels. The US is raising interest rates while the Bank of Canada is expected to be in park until the summer. Canada announced their intention to join the TransPacific Trade Partnership yesterday, which may be a sign that the Trudeau government believes that NAFTA is toast. Current USDCAD price levels suggest that NAFTA collapse risks are not priced into the currency.
Despite all that, picking bottoms (or tops) is like running through a minefield wearing magnetic shoes.
US Treasury Secretary Mnuchin’s “weak dollar” comments will continue to pressure the greenback and support the major currencies. In days of yore, even during bouts of US dollar weakness, various administrations would invariably announce that the government supports a strong dollar policy. That isn’t the case today. Traders will take the path of least resistance and for the time being, selling US dollars appears to have the blessing of the Trump administration.
Mnuchin’s comments will overshadow US economic reports which include Markit PMI, House Price Index and Existing Home Sales.
USDCAD Technical outlook:
USDCAD is headed to 1.1950 following the break of support at 1.2370 and again at 1.2340 which targets 1.2260,(76.4% Fibonacci retracement level of September -January 1.2060-1.2915 range) Only a move above 1.2470 negates the downside pressure. For today, USDCAD support is a 1.2310 and 1.2260. Resistance is at 1.2380 and 1.2420
Today’s range 1.2270-1.2370