September 13, 2024
- Chunky Fed rate cut back in focus
- Geopolitical tensions ratchet higher.
- US dollar opens soft CAD underperforms
FX at a Glance
Source: IFXA/RP
USDCAD open 1.3573, overnight range 1.3565-1.3585, previous close 1.3579
USDCAD was the only currency pair that didn’t lose ground against the greenback between the 6am NY openings Thursday and today. That’s because the increased odds of a 50 bp Fed rate cut next week mean the CAD/US interest rate spread cushion that is helping to cap USDCAD gains loses some of its stuffing. The Canadian economy is a basket case compared to the US and it is only the wide CAD/US interest rate differential keeping USDCAD from testing 1.4000.
If the US labour market is deteriorating, then the Canadian labour market has already crumbled. Canada added 22,000 jobs in August, but the labour force grew by 82,500, mainly due to an influx of immigrants and foreign “students.”. Canadians should be concerned. The UK Telegraph reported that “the UK Office for Budget Responsibility (OBR) reported that the average low-income earner who came to Britain aged 25, cost the government £151,000 by the time they reach age 66. This is because low-paid migrants – who the OBR assumes earn half the average wage – put more demand on public services such as the NHS compared to their relatively low-tax payments.” Why would Canada have a different experience?
Canadian Capacity Utilization rose 79.1% in Q2 (forecast 78.4%, previous 78.6%) and Wholesale Sales rose 0.4% in July.
USDCAD technicals
The intraday USDCAD are modestly bid above 1.3560 and looking for a break above 1.3630 to extend gains to 1.3690. A failure to take out the topside risks a retest of support in the 1.3450 area. That range is likely to remain intact until after the Fed meeting next Wednesday.
USDCAD is trapped in a 1.3440-1.3630 range but the uptrend from June 2021 is intact above 1.3440. on a monthly chart.
For today, USDCAD support is at 1.3560 and 1.3510. Resistance is at 1.3610 and 1.3650.
Today’s Range 1.3550-1.3630
Chart: USDCAD daily
Source: Investing.com
Holiday Monday in Asia
Market activity will be extra quiet on Monday due to an abundance of national holidays, including Day 1 of China’s three-day Autumn Festival break, Japan’s Respect for the Aged Day, in addition to most Muslim countries closing for the Prophet’s Birthday observances.
Making a Case for 50 Bp Cut
The CME FedWatch tool puts the odds of the Fed cutting rates by 50 bps next Wednesday at 41%, which is 26% higher than they were prior to yesterday’s US inflation report. Count former New York Fed President William Dudley in that camp. Yesterday, he said there was a strong case for a 50 bp cut due to the slowing job market. Citibank and JPMorgan Chase economists called for such a move about three weeks ago.
“Take This Diplomat and Expel Him”
Russia expelled six UK diplomats this morning, claiming that the Brits were engaging in espionage and sabotage. The real reason is that Putin is annoyed (scared even) because Britain may be allowing Ukraine to use its “Storm Shadow” long-range missile, which can strike into the heart of Russia. Putin threatened that if allowed, it would be an act of war by NATO.
EURUSD
EURUSD is probing 1.1100 in early NY after trading with a bid in a 1.1070-1.1101 range overnight. Yesterday’s universally expected 25 bp rate cut by the ECB was followed by a somewhat cautious outlook. ECB President Christine Lagarde only said that the direction for rates is “pretty obvious” but indicated that the pace of cuts is data-dependent. Her caution, combined with renewed 50 bp Fed rate cut optimism, powered EURUSD gains. Future direction will be determined by next week’s Fed meeting. Eurozone Industrial Production fell 2.2%, which was better than the -2.7% expected and last month’s -4.1% result.
GBPUSD
GBPUSD rallied in a 1.3123-1.3153 range, powered by diverging Bank of England and Fed/ECB interest rate paths. The latter two are in rate-cutting mode, while the “Old Lady of Threadneedle Street,” as the BoE has been called since 1797, is expected to leave its benchmark rates unchanged next week.
USDJPY
USDJPY got whacked overnight and fell from 141.88 to 140.37 due to the drop in the US 10-year Treasury yield from 3.70% yesterday to 3.622% today. The prospect of deeper and faster US rate cuts, along with the dovish outlook for the ECB, fueled the losses.
AUDUSD and NZDUSD
AUDUSD consolidated yesterday’s gains in a 0.6711-0.6733 range, supported by general US dollar weakness due to renewed US 50 bp rate cut speculation. NZDUSD followed suit and traded in a 0.6169-0.6194 range. The Business NZ PMI index improved to 45.8 from an upwardly revised 44.4, but it is still in contraction. The data indicates that current conditions remain challenging.
USDMXN
USDMXN traded in a 19.4759-19.5715 range overnight after falling from 19.8412 yesterday. Sellers emerged after US inflation numbers rejuvenated 50 bp Fed rate cut speculation and on the back of the ECB rate cut and guidance suggesting more cuts in the pipeline. Also, Banxico Deputy Governor Heath denied rumors that the bank is intervening in the FX market to limit peso losses. Thursday’s industrial activity data was mixed.
FX high, low, open (as of 6:00 am ET)
Source: Investing.com
China Snapshot
PBoC fix: 7.1030 vs exp. 7.1048 (prev. 7.1214).
Shanghai Shenzhen CSI 300 fell 0.42% to 3159.25.
- Chinese markets closed Monday-Wednesday for Mid-Autumn Festival
The CSI 300 is at its lowest level since the beginning of the year due to a rash of issues including ongoing property market crisis, deflationary risks, weak consumer demand, and rising geopolitical tensions and trade spats.
PricewaterhouseCoopers accountants were fined $62.0 million for poor auditing of China Evergrande Group and its operations were suspended for 6 months.
Chart: USDCNY and USDCNH
