Photo:Bing AI

August 9, 2023

  • China falls into deflation-Beijing says its temporary.
  • Data void suggests very quiet trading day ahead.
  • USD dollar drifts lower overnight, opens mixed from Tuesday.

FX at a Glance

Source: IFXA/RP

USDCAD Snapshot:  open: 1.3416-20, overnight range: 1.3405-1.3430, close  1.3418

USDCAD rallied on the back of broad US dollar demand yesterday morning, after a wave of negative risk sentiment washed over markets. The move was reversed later in the day and USDCAD traded quietly overnight.

Oil prices may have helped slow USDCAD gains.  WTI rose from $80.00 Tuesday to $83.88/b overnight and are trading at $84.65/b in NY.  Prices are supported by the recent production cut extension announced by Russia and Saudi Arabia and by concerns that Ukraine attacks on Russian Black Sea shipping will disrupt oil supplies.

Canada building Permits are expected to have fallen by 3.5% in June compared to the 10.5% increase in May.

USDCAD Technicals

The intraday USDCAD technicals are bullish while trading above 1.3380, looking for a break above the 1.3490-1.3500 area to extend gains to 1.3560.

Yesterday’s rally managed to shatter strong resistance in the 1.3480-90 area and reach 1.3502 before stalling out.  The subsequent retreat suggests the break of resistance was a “false move,” leaving the 1.3260-1.3500 trading band intact.

For today, USDCAD support is at 1.3400 and 1.3370.  Resistance is at 1.3460 and 1.3500. Today’s range 1.3370-1.3460.

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap

Today is a day that would be much better spent on a golf course, patio, beach, or anywhere but at your desk. With another 47 days to go until the next FOMC meeting, even the forthcoming Thursday’s US inflation data might not have the power to rouse the markets from their lethargic state.

Governments have a knack for acting without thinking, as demonstrated by the Italian government yesterday. On Monday, authorities announced a “40% windfall tax” on bank profits. On Tuesday, Italian banks lost more than $10 billion in market value. On Wednesday, authorities backtracked and announced a 0.1% cap on the tax.

Yesterday, Philadelphia Fed Governor Patrick Harker suggested that US rates may have peaked, contradicting Fed Governor Michelle Bowman who over the weekend warned of the need for further rate hikes. The decision-makers seem confused, which helps explain the market’s malaise.

Traders are concerned about how today’s US Treasury auction of $38 billion 10-year Treasuries will be received, especially in light of the Fitch downgrade. If JPMorgan Chase CEO Jamie Dimon is to be believed, “it won’t mean much.”

Asian equity indexes closed on a mixed note. Japan’s Nikkei 225 index lost 0.53%, while Australia’s ASX 200 gained 0.37%. European bourses are higher, led by the 1.35% rise in the French CAC 40 index. S&P 500 futures are up 0.30%. The US 10-year Treasury yield is steady at 4.02%.

EURUSD drifted in a 1.0952-1.0988 band, garnering a bit of support from rebounding equities after the Italian government backtracked on its bank tax. The Eurozone economic calendar was empty.

GBPUSD traded quietly in a 1.2730-1.2782 range. Traders were undecided due to a lack of data. Prices are getting a bit of support from Barclays Bank analysts, who expect GBPUSD to be supported by UK rates remaining “higher-for-longer,” due to resilient consumer demand and a strong labour market.

USDJPY was steady in a 143.00-143.40 range, supported by firm US Treasury yields and dovish Bank of Japan expectations.

AUDUSD bounced in a 0.6529-0.6571 range. The weaker than expected Chinese inflation data weighed on the currency, as it implies lower demand for Australian raw materials.

There are no significant US data reports today.

FX high, low, previous close-Monday

Source: Saxo Bank

China Snapshot

Bank of China Fix: Today 7.1588 , expected 7.2109, previous 7.1365

Shanghai Shenzhen CSI 300 fell 0.26% to 3979.73.

July CPI -0.3% y/y  (forecast -0.4%, previous 0%)

PPI falls -4.4% y/y (forecast -4.1%, previous -5.4%)

Bloomberg: The statistics bureau attributed the decline in consumers prices to the high base of comparison with last year, saying the contraction is likely to be temporary and consumer demand continued to improve in July.

States banks reportedly intervened to buy yuan and sell US dollars.

Chart: USDCNY 6 month

Source: Bloomberg