Picture: Flickr Creative commons

April 19, 2021

Soft US Treasury yields drive greenback down

Canada Budget released today

US dollar opens lower across the board

USDCAD open  1.2475-79, Overnight Range 1.2473-1.2527, close 1.2508

FX at a Glance

Source:  IFXA/RP

FX Recap and Outlook

The US dollar opened on the defensive to start the New York session.  Traders continue to be enamoured with the prospect of a global economic boom, supported by 18.3% China GDP, robust US economic data, US stimulus, and a very dovish Fed.  The story may be old, but it still has legs.

Bitcoin (BTCUSD) caused a stir when prices plunged from $62,456.68 to $53,290.62.  Traders bailed on concerns the US Treasury would intensify regulation of the digital currency due to money laundering and terrorist financing concerns. Prices recovered to $56,590.08 in early NY trading.

Geopolitical tensions intensified.  Russia sent two warships to the Black Sea, exacerbating concerns due to its military build-up on the Ukraine border. Russia and the Czech Republic are in a war of words over espionage accusations.  China is unhappy with what it perceives as US interference in its “internal affairs” due to recent overtures to Taiwan and American support for Hong Kong protesters.

The major Asia equity indexes closed higher except for Japan’s Nikkei 225 and Australia’s ASX200, which were flat.  European bourses are modestly have posted small gains, and Wall Street futures are slightly negative.  Oil prices have inched down while gold added to Friday’s gains.

All of the above and the Fed’s insistence that US interest rates will remain low, even if inflation rises, has US 10 year Treasury trading at 1.562%,

EURUSD ticked higher in Asia then accelerated in Europe rising from 1.1941 to 1.2041.  Traders are cautious ahead of Thursday’s ECB monetary policy meeting, although it is expected to be a very tame affair. Ongoing coronavirus restrictions and lockdowns in many European regions ensure policymakers will remain in “wait and see” mode.  The short term technicals are bullish with the break of 1.1990, looking for a test of 1.2110.

GBPUSD is trading at the top of its 1.3811-1.3900 range.  The rally is fueled by broad US dollar weakness, higher House Price Index data, and anticipation that the economy will recover at a faster pace as coronavirus restriction ease. The intraday GBPUSD technicals are bullish above 1.3800, looking for a decisive break above 1.3910 to target 1.4000.

USDJPY dropped from 108.83 to 108.82 due to a bout of risk-aversion stemming from geopolitical tensions and Bitcoin volatility, but mostly because of the soft 10-year Treasury yields. Fed policymakers have successfully pushed back against market concerns that US rates would rise because of higher inflation.  A drop below support at 107.90 would shift the focus to 107.00.

AUDUSD and NZDUSD rallied because of the improved risk tone. AUDUSD got an added lift from higher commodity prices, including iron ore.  The RBA monetary policy meeting minutes from April 6 are due tomorrow but should not have any impact on FX.

USDCAD dropped alongside the surge in the antipodean currencies, with  firm crude prices adding to the selling pressure.  The Federal government releases its first budget in two years.  It is a big deal for Canadians as it is expected to contain a series of wealth taxes and new spending initiatives.  FX traders will not care as recent G-10 budgets have not impacted currencies.  Traders are looking ahead to Wednesday.  The Bank of Canada monetary policy meeting could be considered “hawkish” if they announce tapering of QE purchases, which may lead to additional USDCAD selling.

However, the BoC has already pushed back against that view, stating that monetary policy is still accommodative even if  QE is reduced.

USDCAD Technicals

The intraday USDCAD technicals are bearish below 1.2530, with the break below 1.2500 targeting 1.2440. A move above 1.2530 suggests gains to 1.2560.   For today, USDCAD support is at 1.2440 and 1.2410.  Resistance is at 1.2530 and 1.2560.  Today’s Range 1.2440-1.2520

Chart: USDCAD 4 hour

Source:  Saxo Bank

FX open, high, low, and previous close

Source: Saxo Bank