- Canada CPI higher than expected
- Chinese government vows to stabilize stocks and support developers
- Commodity currencies outperformed
FX at a Glance 24 hours
Source: IFXA Ltd/RP
USDCAD Snapshot: open 1.2720-24, overnight range-1.2690-1.2774, close 1.2765
It’s a scorcher, and it isn’t from global warming. Canada’s headline, core, and monthly inflation data were hotter than expected, which may make Bank of Canada Governor Tiff Macklem sweat.
February CPI soared to 5.7% y/y compared to 5.1% in January and even worse, the price increases were broad-based. Core-inflation jumped to 4.7% from 4.3% and the monthly CPI rate was 1.0%.
On March 2, the BoC said “The Governing Council expects interest rates will need to rise further.” Today’s data suggests the size of the rate hikes may increase as well.
Chart: Price rise in major CPI components
Source: Statistics Canada
USDCAD plunged from 1.2867 yesterday morning to 1.2690 following the CPI data due to improved risk sentiment following China stimulus talk and positive comments about peace negotiations from Ukraine.
USDCAD ignored the slump in WTI oil prices which have fully erased the Russian invasion of Ukraine premium. That makes sense as the Loonie didn’t see much benefit from higher oil prices so it shouldn’t suffer when WTI retreated.
Prices may hang around this level until the 10:00 am option expiry window closes as there are $2.2 billion in strikes between 1.2665-1.2700 maturing.
USDCAD technical outlook
The USDCAD technicals are directionless inside a 1.2640-1.2900 range. The intraday technicals are bearish below 1.2770, looking for a break below 1.2680 to extend losses to 1.2640. A break below 1.2640 targets 1.2550. A move above 1.2770 shifts the focus to 1.2900.
For today, USDCAD support is at 1.2680-1.2640. Resistance is at 1.2770 and 1.2810. Today’s Range 1.2670-1.2770
Chart USDCAD daily
Source: Saxo Bank
G-10 FX recap and outlook
The heavy hand of the Chinese ruling elite and comments from Ukraine President Volodymyr Zelenskyy managed to turn trader frowns, upside down. There is nothing like the thought of hundreds of billions of Chinese stimulus cash to prop up slumping mainland Chinese equity markets, to give the G-10 equity markets a lift.
Chinese Vice Premier Liu He promised to maintain stock market stability and implement policies to mitigate developer risks. He said the government would take measures to stimulate economic growth in Q1. He noted that talks between the US and China on Chinese companies listed in the US were making progress.
The Chinese have also rapidly walked back from comments supporting Putin’s belligerence, perhaps taking note of the damage the sanctions are doing to the Russian economy and oligarch bank accounts.
Ukraine President Zelenskyy said the Russian negotiations are becoming “more realistic,” although his words may have been misheard due to the noise of Russian artillery shelling Kyiv and Kharkiv.
Still, the news was enough to power global equity indexes higher. The Hong Kong Hang Seng Index closed up 9.08%, while Japan’s Nikkei 225 index gained 1.64%. European bourse surged higher. The French CAC Index climbed 3.29%, and the Germany Dax rose 3.04% (as of 6:45 am ET). S&P 500 and DJIA futures are 1.22% and 1.05% higher, blissfully ignoring the US 10-year Treasury yield, which touched 2.204%.
Financial markets are trading like today’s FOMC meeting is not a risk. They seem to believe that the Fed will not deviate from its hawkish outlook, partly because of uncertainty around geopolitics. They may be surprised. Stubbornly high inflation suggests the dot-plot forecast may be revised even higher than the five hike predictions that analysts expect.
EURUSD rallied from its Asia low of 1.0949 to 1.1014 on the back of improved risk sentiment while ignoring comments from ECB policymaker Luis de Guindos forecasting that the Eurozone would not go into recession despite higher inflation.
GBPUSD mirrored EURUSD moves rising from an Asia low of 1.3038 to 1.3071. Traders are awaiting the FOMC meeting today and the Bank of England meeting tomorrow. The BoE is widely expected to raise rates by 0.25%.
USDJPY continued to probe resistance in the 118.50 area with prices supported by rising US Treasury yields. Japan’s trade deficit was larger than expected.
AUDUSD and NZDUSD rallied following news of China’s stimulus plans.
US Retail Sales rose 0.3% m/m in February, a tad worse the 0.4% expected, but the results were ignored.
Chart of the Day: Hang Seng Index
Source: Yahoo Finance
FX open, high, low, previous close as of 6:00 am ET
Chart: Saxo Bank
Today’s Bank of China Fix 6.3800, previous 6.3760
Shanghai Shenzhen CSI 300 fell 4.32% to 4,156.08
Chinese Vice Premier Liu He promised to maintain stock market stability and implement policies to mitigate developer risks. He said the government would take measures to stimulate economic growth in Q1. He noted that talks between the US and China on Chinese companies listed in US were making progress.
Chart: China 1 month
Source: Saxo Bank