Picture: Pixabay/IFXA Ltd

September 14, 2021

US inflation slips to 0.3% m/m (July 0.5%)

WTI oil grinds higher as Hurricane Nicholas disrupts Gulf of Mexico production

US dollar opens slightly lower, except against AUD

FX at a Glance:

Source: IFXA/RP

USDCAD Snapshot   Open 1.2653-58, Overnight Range 1.2610-1.2661, Previous close 1.2642

USDCAD dropped from a peak of 1.2692 to 1.2638 yesterday, then consolidated those losses in a tight 1.2642-1.2661 band overnight.  Prices renewed their slide after US inflation was cooler than expected.  Prices are getting extra support from the latest bump in oil prices.

WTI oil climbed from $67.70/barrel last Thursday to $71.11/b overnight fueled by fears of US supply disruptions as Hurricane Nicholas disrupts production.  The International Energy Agency (IEA) trimmed its 2021 global demand forecast by 105,000 b/day but increased its 2022 guess.  The IEA expects a sharp rebound in oil demand in October. Prices are also supported by forecasts for $100/b oil.

Canadian June Manufacturing Sales fell 1.5% m/m, a touch worse than the 1.0% decline expected, mostly due to a drop in wood product sales. The results were ignored by FX traders.

USDCAD traders continue to ignore domestic data, leaving direction to be determined by US dollar sentiment.

Technical view:  The intraday USDCAD technicals are modestly bearish below 1.2660, looking for a break of 1.2550 to extend losses to 1.2420.  A rally above 1.2660 targets 1.2750.  For today, support is at 1.2610 and 1.2570.  Resistance is 1.2660 and 1.26900. Today’s range 1.2590-1.2660

Chart USDCAD 4 hour

 Source: Saxo Bank

G-10 FX recap and outlook

The US inflation report didn’t do anything to resolve the “transitory or not” debate.  Instead, it merely muddied the waters further.  August CPI, at 0.3% m/m may be lower than expected but at 5.3% y/y, inflation is still high and may not be coming down as quickly as expected.  That is because many companies are passing on higher labour and materials prices to consumers.

European equity indexes are mostly higher following the report as are DJIA and S&P 500 futures. Gold prices jumped $14.00/oz to 1798.00 from $1784 while US 10-year Treasury yields slipped to 1.332% from 1.345%.

EURUSD rallied after the inflation numbers, rising from 1.1811 as traders decided the results reduced pressure on the Fed to raise rates. However, dovish comments from ECB policymaker Francois Villeroy reiterating that the “spike in inflation is temporary” may limit gains.

GBPUSD cracked above 1.3900, post-CPI, following steady gains in Europe, which took prices from 1.3831 to 1.3881 overnight.  The rally in Europe came on the heels of a strong UK employment report. Job vacancies hit record highs and payrolls returned to pre-pandemic levels.  Brexit is still an issue.  The UK decided to delay Brexit border checks on EU goods which will not make the EU happy.  The intraday GBPUSD technicals are bullish while prices are above 1.3780.

USDJPY traded narrowly in a 109.96-110.14 band and dropped to 109.83 after CPI as US Treasury yields inched lower.

AUDUSD dropped from 0.7372 to 0.7332 after RBA Governor Philip Lowe questioned the wisdom of market participants’ pricing in rates in 2022. He reiterated that Australian rates were unlikely to rise before 2024, and domestic factors were different from other countries. He added, GDP was likely to shrink by at least 2.0%.   Prices recovered most of the overnight losses in NY.

Chart of the Day- AUDUSD action after Governor Lowe speech and US CPI

Source:  Saxo Bank

FX open, high, low, previous close

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix, 6.4500,   Previous 6.4497

Shanghai Shenzhen CSI 300 index fell 1.49% to 4917.16                   

Property manager Evergrande problems continue to weigh on stocks.  Company denies its going bankrupt.

Chart: USDCNY 1 month

Source: Yahoo Finance