Photo: Bing AI
October 26, 2023
- ECB expected to leave rates unchanged.
- US economy may have grown by 4.2% in Q3.
- US dollar extends gains -CAD outperforms.
FX at a Glance
USDCAD Snapshot: open: 1.3793-97 ,overnight range 1.3790-1.3821, close 1.3798
USDCAD pretty much ignored the results from the Bank of Canada monetary policy meeting yesterday and took direction from developments south of the border. US Treasury yields soared, stocks fell and traders scrambled to buy US dollars against everything. The Loonie was collateral damage.
The Bank of Canada left rates and monetary policy unchanged, while leaving further rate hikes on the table. The quarterly Monetary Policy Report downgraded the GDP forecasts for Q3 to 0.8% from 1.5% and are forecasting Q4 growth at just 0.8%.
USDCAD is not getting much support from oil prices. WTI fell to $84.30 in NY today from $85.59/b overnight. News that the Energy Information Administration (EIA) reported weekly crude inventories rose by 1.37 million barrels was ignored. Traders are concerned that slowing global growth will offset potential supply disruptions from the Israel Hamas war.
The intraday USDCAD technicals are bullish with the uptrend line from 1.3670 intact while prices are above 1.3770. A break above 1.3850 targets 1.3920. A move below 1.3770 targets 1.3730.
The daily USDCAD technicals show an uptrend channel from the middle of July low (1.3080) guiding prices toward the channel top (1.3920)
For today, USDCAD support is positioned at 1.3770 and 1.3730, with resistance at 1.3860 and 1.3920. Today’s expected trading range is between 1.3770-1.3850
Chart: USDCAD daily
Source: Daily FX
G-10 FX recap
The US economy is on fire, or it was in Q3 as it grew 4.9%, trouncing the consensus forecast for a 4.2% gain. Durable Goods Orders also beat expectations rising 4.7% y/y in September (forecast 1.5%). The only disappointment was a small increase in weekly jobless claims to 210,000 from 198,000 last week.
The market forgot to react. The US 10-year Treasury yield ticked down to 4.93% from 4.95% and the US dollar barely budged. Perhaps its just a delayed reaction to the information overload as the ECB monetary policy statement was release just moments earlier.
The US dollar rallied yesterday, and buyers clamored for more overnight. A surge in the US 10-year Treasury yield from 4.806% to 4.959%, and disappointing tech earnings reports knocking Wall Street lower, fueled the rally. Traders were also positioning for a hawkish Fed hold at Monday’s FOMC meeting.
Last year in October, the Central Bank of Turkey (CBT) cut its one-week repo rate to 10.2% in an inflation-fighting move championed by Turkey President Recep Erdogan. Today, the CBT is expected to raise the one-week repo rate by 500 bps to 35%, to combat inflation. Genius, thy name is not Recep.
Asian equity indexes closed with losses led by a 2.14% plunge in Japan’s Nikkei 225 index. Australia’s ASX 200 lost 0.61%. European bourses opened negatively, and things have gotten worse. The German Dax is down 1.31%, while the UK FTSE 100 index is down 070%. S&P 500 futures are 0.66% lower, and Gold (XAUUSD) gained $11.37.
EURUSD traded lower in a 1.0532-1.0575 range, and tis trading at 1.0545 in after the ECB statement and into President Lagarde’s press conference. The unchanged rate decision was expected but analysts still believe that elevated inflation levels will ensure rates remain at current levels for a prolonged time.
GBPUSD extended yesterday’s losses, falling from 1.2113 to 1.2069 in early European trading but eked out some gains and rallied to 1.2105 in NY. The hourly technicals are bearish below 1.2120 and looking for a break of support at 1.2040 to lead to a test of support in the 1.1820-40 area.
USDJPY is comfortably above 150.00, rising from 149.90 to 150.79 overnight before opening in NY at 150.27. The rally was fueled by yesterday’s steep rise in the 10-year Treasury. The anticipated BoJ FX intervention failed to materialize, although officials claimed to be “watching FX moves with a high sense of urgency.”
AUDUSD inched higher, trading in a 0.6270-0.6316 range overnight. Prices were underpinned by comments from RBA Governor Michele Bullock, who didn’t rule out another rate increase due to the recently higher than forecast inflation reading, in testimony before the Senate. She said, “Even though we haven’t raised interest rates since our last interest rate rise in June, we’ve made it very clear that we might need to go again.” Westpac Bank economists think the RBA will hike in November.
FX high, low, open
PBoC fix: today 7.1784, expected 7.3265, previous 7.1785.
Shanghai Shenzhen CSI 300 rose 0.28% to 3514.14.
Chart: USDCNY (onshore) vs USDCNH (offshore)