September 9, 2022

  • Canada sheds 39,700 jobs, Unemployment rate spikes to 5.4%.
  • BoJ and Government officials complain about yen volatility
  • US dollar crushed on profit-taking stampede

FX at a glance: 

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2985-89, overnight range 1.2984-1.3093, close 1.3090

USDCAD is rapidly recouping its overnight losses after a weaker than expected employment report.  Statistics Canada reported that Canada lost 39,700 jobs compared to the forecast for a 15,000 gain.  The unemployment rate climbed to 5.4% from 4.9% in July.

 The cumulative job loss since May is 114,000 (0.6%) and if the trend continues in September, the Bank of Canada may only raise rates by 50 bps at the October 26 meeting.

Overnight, USDCAD rallied on the back of broad US dollar weakness.  Threats of FX intervention by a slew of Japanese officials, combined with softer than expected Chinese inflation data, sparked a massive profit-taking US dollar sell-off, and USDCAD went along for the ride.

Thursday, Bank of Canada Deputy Governor Carolyn Rogers told a Calgary audience that policymakers will follow up Wednesday’s 75 bp rate hike with further rate increases because the economy is hot, and inflation is high.  It wasn’t news as the BoC monetary policy statement said the same thing.

WTI oil prices found a bottom at $81.43/barrel yesterday and rallied to $85.78 in NY today.  Prices are underpinned by the overnight US dollar sell-off, and by ongoing supply concerns from the Russian energy sanctions. WTI prices have been weighed down by fears of weaker demand from China because of Covid measures., however winter is coming, and demand is sure to rise.

USDCAD Technical outlook

The intraday USDCAD technicals flipped to bearish with the decisive break below 1.3070 overnight, then dropped rapidly to 1.2984.  A breech of support in the 1.2960-1.2980 area will extend losses to 1.2880.

The USDCAD uptrend from mid-august is intact while prices are above the 1.2960-80 area.  A bounced back through 1.3040 would suggest the overnight retreat was just a correction, while a move above 1.3100, negates the down trend.

Keep in mind, that the USDCAD sell-off occurred in Asia and Europe.  USDCAD is usually an after-thought in those markets which suggests the currency will rebound sharply today.

For today, USDCAD support is at 1.2980 and 1.2960.  Resistance is at 1.3040 and 1.3090. Today’s range: 1.2980-1.3060

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

FX traders had a Chicken Little moment overnight, except it wasn’t the sky falling, but the US dollar, and boy, did it drop.

All it took was a heightened threat of Bank of Japan intervention to buy yen and sell US dollars. Usually, intervention threats are just empty words, and for the most part, it was more of the same. Chief Cabinet Secretary Hirokazu Matsuno said he was concerned about abrupt FX moves and blamed speculation for part of the recent yen weakness. BoJ Governor Haruhiko Kuroda said he met with Prime Minister Fumio Kishida to discuss overseas and domestic economic developments.

But it wasn’t until Finance Minister Shunichi Suzuki tossed out a number (3.5 trillion yen, or $24.3 billion) that traders took the comments seriously and sold USDJPY, which fueled US dollar selling against the rest of the G-10 majors and boosted commodity prices.

AUDUSD was the biggest gainer, rising 2.02%, due to a wave of short-covering from softer than expected Chinese inflation data and after commodity prices rebounded.

Markets ignored Fed Powell’s comment yesterday, reiterating his commitment to driving inflation down to the 2.0% target.

Investors are starting to feel like the worst-case scenarios are reflected in equity prices. European governments have taken steps to cap soaring energy costs, and traders are convinced that the terminal rate for many central banks is 4.0%.

Asian equity traders followed Wall Street’s lead and bought stocks. The major Chinese indexes outperformed after August CPI and PPI data was lower than expected. European bourses shrugged off yesterday’s ECB rate hike and hawkish outlook. The 1.62% rise in the French CAC is leading the rest higher.

Wall Street is poised to add to yesterday’s gains as the S&P %00 and DJIA futures are 0.82% higher. 

WTI oil jumped 1.70%, while gold gained 1.09% on profit-taking ahead of the weekend.

The US 10-year Treasury yield slipped to 3.26% in NY from 3.325% in Asia, helping to improve global risk sentiment.

EURUSD rallied from 0.9940 to 1.0113 overnight but reversed course in NY and prices dropped to 1.0057 as European traders’ square positions ahead of the weekend

The impact from yesterdays ECB rate hike (75 bps) is already fading even though another 75 bp bump is expected at the October 27 meeting. EURUSD gains are not sustainable due to ongoing recession risks and because the EURUSD technicals are bearish below 1.0200.

GBPUSD is tracking EURUSD moves.  Prices climbed to 1.1647 from 1.1501 overnight but have dropped to 1.1576 in NY. The ongoing energy crisis and elevated risk of a recession will limit GBPUISD gains.

USDJPY is sitting at 142.36 after falling from 144.15 to 141.51 overnight. Traders are balancing FX intervention risks with the outlook for higher US interest rates, which has put a floor under the currency pair.

AUDUSD traded in a 0.6749-0.6876 range because of rebounding commodity prices and Chinese inflation results.

Chicago Federal Reserve President Charles. Evans, Kansas City Fed President Ester George, and Board of Governors member Christopher Waller are speaking today.

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix: 6.9098, previous 6.9148

Shanghai Shenzhen CSI 300 rose 1.39% to 4,093.79

August CPI rose 2.5% y/y (forecast 2.8%, previous 2.75)

August Producer Price Index rose 2.3% y/y (forecast 3.1%, previous 4.2%)

China Close Monday for Mid-Autumn holiday

Chart: USDCNY  1 month

Source: Bloomberg