- GBP plunges after March GDP is negative
- Hot US inflation data burns through markets overnight
- USD rises, CAD outperforms vs commodity currencies
FX change at a glance: 24 hours
Source: IFXA Ltd/RP
USDCAD Snapshot: open 1.3018-22, overnight range 1.2979-1.3045, previous close 1.2993
USDCAD acted like a ping pong ball in a tournament championship match following yesterday’s US inflation data. Traders decided that core cpi was the most important component and reacted when it was higher than expected. Core (ex-food and energy) CPI rose 0.6% m/m in April, compared to the forecast of a 0.4% increase, and the 0.3% in March.
USDCAD spiked to 1.3038 from 1.2955, then dropped to 1.2923 by mid-morning. Just when the USDCAD bears thought they were in control, the free-falling S&P index unleashed a fury of negative risk sentiment and prices rallied to the 1.3000 area.
The move continued overnight and USDCAD posted a new overnight session high when S&P 500 futures fell below the 3900 level.
WTI oil prices are choppy in a broad $98.00-$110.00/b range. Supply concerns stemming from sanctions imposed on Russia support prices while China growth concerns limits topside moves. Even so, WTI is trading at an 8-year peak and that should act as a drag on USDCAD gains.
BoC officials are dealing with similar issues as the Fed and there is no reason to believe that Governor Tiff Macklem will fail to match Fed rate hikes tick for tick. The 10-yr Canada government bond yields 3.0% while the US 10-yr Treasury yield is 2.81%, which should reinforce USDCAD resistance in the 1.3050 area.
USDCAD direction remains tied to global risk sentiment, measured by the S&P 500 but gains may be slowed if today’s speech by BoC Deputy Governor Toni Gravelle is considered hawkish. His speech is titled “Commodity price shocks and the impact on growth and inflation in Canada.”
USDCAD technical outlook
The intraday USDCAD technicals are bullish above 1.3000 looking for a decisive break above 1.3050-60 to extend gains to 1.3160. A move below 1.3000 suggests a retest of support at 1.2950. In addition, the USDCAD uptrend from April 20 is intact above 1.2860. A move below 1.2800 would extend losses to 1.2640.
For today, USDCAD support is at 1.2990 and 1.2950. Resistance is at 1.3050 and 1.3090. Today’s Range 1.2970-1.3060
Chart: USDCAD daily
Source: Saxo Bank
G-10 FX recap and outlook
Chicken Little may have a point, at least from an equity market and Bitcoin point of view. The sky is falling.
US inflation was deemed “hotter than forecast,” and after a flurry of to-ing and fro-ing, traders settled on a direction and sold stocks. The S&P 500 sank, rallied, then dropped steadily. Prices continued to fall overnight, and S&P 500 futures point to another negative open on Wall Street. The US dollar rallied, and Treasury yields plunged as demand for safe-haven assets soared.
The US 10-year Treasury yield jumped to 3.08% from 2.92% after the CPI data, then dropped steadily to 2.826% in early NY today.
It’s a “risk-averse” world. Traders are worried that sharply rising US interest rates will slow the domestic economy and coupled with the economic slowdown in China, derail global growth.
Bitcoin took it on the chin. BTCUSD fell 13.75% in the past 24 hours and dropped from $39,645 on May 4 to $27,578.00 today.
Fed officials are attempting to calm markets. St Louis Fed President James Bullard started the chatter about the need for a 0.75% rate hike on April 18. Yesterday, he said, “0.75% is not my base case.”
Weekly Jobless claims rose 1,000 from the upwardly revised 202,000 level last week, while PPI was as expected at 0.5%, well below the 1.6% in March.
EURUSD traders have short memories. Yesterday, they were buying EURUSD after a series of hawkish comments from ECB officials set the stage for a July rate hike. They crushed the single currency overnight, taking it from 1.0529 in Asia to 1.0423 just before NY opened due to risk aversion driving S&P 500 futures lower.
GBPUSD closed weak and continued to fall overnight, dropping from 1.2252 to 1.2167, before retracing to 1.2207 in early NY. GBPUSD sentiment is bearish, and a wave of GBPJPY selling exacerbated the drop. The Bank of England warned of recession risks and this morning’s March GDP data reinforced the risk. March GDP was -0.1% m/m compared to the forecast of 0.1%. Analysts are warning of stagflation, and BoE Deputy Governor Dave Ramsden said more rate hikes were coming.
Adding insult to injury, the EU and UK have renewed the verbal sparring over the Northern Ireland protocol, with the EU threatening to suspend the Brexit trade deal.
USDJPY dropped to 128.41 from 130.05 due to a wave of safe-haven demand and the steep plunge in US 10-year Treasury yields. The Bank of Japan Summary of Opinions noted the benefits of a weak currency for the economy.
AUDUSD is the worst-performing currency losing 1.98% since Wednesday’s NY open. The rise in risk aversion, lower commodity prices, and China slowdown fears weighed on prices.
NZDUSD traded with a negative bias in a 0.6235-0.6296 range despite inflation expectations rising.
Chart: Bitcoin (BTCUSD 10 day)
FX open, high, low, previous close as of 6:00 am ET
Chart: Saxo Bank
China Snapshot –
Today’s Bank of China Fix 6.7292 Previous 6.7290
Shanghai Shenzhen CSI 300 fell 0.44% to 3,958.74
PBoC governor promises to increase support for economy., saying his priority is to support growth.
China’s fourth largest property developer, Sunac China, missed payments for four notes. The company says there are no assurances it will be able to meet financial obligations.
Chart: USDCNY 1 month
Source: Yahoo Finance