February 23, 2024

  • Equity markets ignoring Bond bears.
  • Fed officials continue to make a case for unchanged rates.
  • US dollar sell-off stalls.

FX at a Glance

Source: IFXA/RP

USDCAD Snapshot: open 1.3486-90, overnight range 1.3462-1.3503, close 1.3483

Mick Jagger couldn’t get no satisfaction, and the Loonie can’t get no traction. Tuesday’s inflation data should have given the Canadian dollar a wallop and sent it close to 1.3800 as it supports a Bank of Canada rate cut. Headline CPI fell to 2.9%, which is inside the BoC’s target range of 1-3%. The USDCAD reaction was sharp, short, and then unwound.

The next day, the FOMC minutes revealed a Committee that has no intention of cutting rates in March or even May. That should have been another excuse to buy USDCAD. It didn’t happen. Canada Retail Sales were rather robust, with the ex-autos component rising 0.6% in December (-0.4% in November). USDCAD retreated modestly as the results suggested the BoC did not need to hurry to cut rates.

But the domestic data is only a minor input into USDCAD direction as traders only have eyes for US market developments. The S&P 500 surged 2.17% yesterday, while the Nasdaq jumped 2.96% despite the 10-year Treasury climbing to 4.35%. Perhaps bond traders think equity traders are “AI holes” for being so bullish on stocks when the Fed is not in an easing mode.

The Bank of Canada monetary policy meeting is on March 6, and the FOMC meeting is on March 20. Barring a major geopolitical event, USDCAD has nowhere to go and is likely stuck in a 1.3360-1.3660 range.

USDCAD Technicals

The intraday USDCAD technicals are bearish below 1.3510 and looking for a break below 1.3440 to extend losses to 1.3410, then 1.3360.  A break above 1.3510 targets 1.3550.

USDCAD has bounced erratically in a 1.3440-1.3680 range since February 13 and since there is no actionable US or Canadian data today, that range will remain intact.

For today, USDCAD support is at 1.3440 and 1.3410. Resistance is at 1.3510 and 1.3540. Today’s range is 1.3440-1.3520

Chart: USDCAD 4 hour

Source: Investing.com

G-10 FX recap

The Nvidia results have buoyed global stock markets, while “Negative Nancy” Fed officials are doing their best to stamp out aggressive rate cut hopes. The Fed has succeeded in spooking bond bulls who have boosted the US 10-year Treasury yield to 4.337% today from 4.197% last Thursday.

Fed Vice Chair Philip Jefferson said that if the economy evolves as expected, it would be appropriate to cut rates. However, he is concerned about consumer spending being more resilient, employment weakening, and geopolitical risks having a greater impact on commodity prices. Christopher Waller said there is no rush to cut rates, and Lisa Cook needs to have greater confidence in the inflation downtrend before dialing back rates.

EURUSD drifted in a tight 1.0814-1.0840 range, which is inside yesterday’s range. Yesterday’s PMI data (except for Germany’s) were better than expected, but Germany contributes 1/3 of the eurozone economic output, and Germany is in a recession (Q3 GDP -0.3% q/q). Today, the German Ifo Business Climate Index rose to 85.5 from 85.2 in January. Current Assessment and Expectations were a tick better as well. The EURUSD uptrend from October is intact while prices are above 1.0720.

GBPUSD is trading with a small bid in a 1.2649-1.2702 range after Thursday’s PMI data hinted that the economy was slowly recovering. The GBPUSD uptrend that began on February 5 is intact while prices are above 1.2570.

USDJPY traded quietly in a 150.34-150.79 range with Japanese markets closed for a holiday. The jump in US Treasury yields, combined with recent BoJ Governor Ueda comments, are underpinning prices, but fear of intervention is slowing gains.

AUDUSD traded sideways in a 0.6550-0.6580 range, with this week’s rise in US Treasury yields helping to cap gains.

USDMXN consolidated yesterday’s gain in a 17.0952-17.1580 range. The minutes of the Banxico monetary policy meeting on February 8 were neutral to hawkish. The Board is data-dependent but focused on achieving its 3.0% inflation target.

The US economic calendar is empty.

FX high, low, open (as of 6:00 am ET)

Source: Investing.com

China Snapshot

PBoC fix: closed 7.1064, expected 7.2008, Monday 7.1018

Shanghai Shenzhen CSI 300 rose 0.09% to 3489.74.

Chart: USDCNY daily and USDCNH

Source: Bloomberg