April 11, 2022

  • Risk sentiment sours on bond sell-off
  • EURUSD climbs on relief rally, then fades
  • US dollar opens modestly lower compared to Friday

FX change at a glance: 24 hours

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2574-78, overnight range 1.2568-1.2616, close 1.2568

USDCAD rallied in Asia on the back of broad US dollar demand as risk sentiment soured, US Treasury yields climbed, and oil prices fell.

USDCAD is supported by widening US/CAD interest rate differentials.  The US 10-yr yield is 0.73% higher than the Canada 10-year

USDCAD is also underpinned by the drop in crude oil prices.  WTI fell from $98.25/barrel in Asia to $92.98/b in NY.  Traders fear the COVID-19 outbreak in China will spread throughout the country and reduce oil demand. Even so, embargos on Russian oil aren’t going away which should limit losses.

The Bank of Canada meeting Friday should limit USDCAD gains if the raise rates 0.50% as is widely expected.  The BoC will also release the quarterly Monetary Policy Report and new forecasts.

USDCAD technical outlook

The intraday USDCAD technicals are bullish inside the well-defined 1.2420-1.2660 range.  A break above 1.2620 targets 1.2660 while a move below 1.2560 targets 1.2510.  Fibonacci retracement analysis favors a drop to 1.1960, the bottom of the 2015-2020 range, while prices are below 1.2605.

For today, USDCAD support is at 1.2550 and 1.2510.  Resistance is at 1.2620 and 1.2660.  Today’s Range 1.2540-1.2620

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

Surging Treasury yields soured risk sentiment, knocked global equities lower, and gave the US dollar a lift in an otherwise uneventful start to the week.

The US 10-year Treasury yield rallied 0.396% since last Monday, rising to 2.784% overnight from 2.388% on April 4.  Bond traders remain spooked by Fed Vice Chair Lael Brainard’s hawkish rate outlook and support for a “rapid pace” of quantitative tightening.

Hawkish Fed-speak and recession talk kept Asian equity markets on the defensive while the ongoing COVID-19 outbreak and fears it could spread trashed Hong Kong’s Hang Seng (-3.03%) and the Shanghai Shenzhen CSI 300 index (-3.09%).  Australia’s ASX squeezed out a 0.10% gain.

European bourses are trading mixed.  The French CAC rallied 0.57% after French President Macron’s re-election prospects improved after round one.  Germany’s DAX index is down 0.49% due to US rate hike fears and the ongoing Russia/Ukraine war.

DJIA and S&P 500 futures are trading near session lows  Oil prices are lower on fears of reduced demand due to China’s COVID outbreak.  Gold prices climbed to $1959.23 after closing at $1947.30, Friday.

EURUSD rallied from 1.0876 to 1.0953 on news that incumbent French President Macron beat right-wing challenger Marine Le Pen, in round one of the election, raising the odds he will prevail in round two.  Prices retreated after traders refocused on the recessionary risks and humanitarian crisis from the ongoing Russian invasion of Ukraine.  The intraday EURUSD technicals are bearish below 1.0950.

GBPUSD chopped about in a 1.2991-1.3055 range, managing to shrug off mostly weaker than expected economic data.  The UK economy grew just 0.1% in February which some analysts suggest is a precursor to a contraction in the coming months.  Industrial Production fell 0.6% m/m and Manufacturing Production fell 0.4% m/m. The GBPUSD technicals are bearish below 1.3100.

USDJPY rallied from 124.29 to 1.2547, with expected resistance at 125.00 failing to materialize due to the steep rise in US Treasury yields.   Bank of Japan officials focus on keeping ultra-easy monetary policy until they achieve their inflation target and do not seem overly concerned about the free-falling yen.

AUDUSD traded in a 0.7419-0.7465 range and NZDUSD traded in a 0.6816-0.6854 band.  Both currency pairs continued to suffer from the aggressive Fed rate outlook.  The Reserve Bank of New Zealand is expected to raise rates on Wednesday by  0.25%, although many analysts predict a 0.50% hike.

The US economic calendar is empty.

Chart: US 10-year Treasury yield since April 4


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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3645 (Previous close 6.3563)

Shanghai Shenzhen CSI 300 3.09% to 4,100.07

China March CPI 1.5% y/y, (forecast 1.2%, previous 0.9%)

March PPI 8.3% y/y (forecast 7.9%, previous 8.8%)

Chart: China 1 month

Source: Saxo Bank