Canadian loonie takes flight into BOC, US bond yields rebound

Dollar Soars vs Japanese Yen; Euro Dips as Russia Cuts Gas Supply

Summary: FX volatility stayed elevated as markets ended the month of May. The US Dollar tumbled against the Canadian Loonie (USD/CAD) to 1.2640 from 1.2700 ahead of today’s Bank of Canada interest rate meeting. Overall traded for the US Dollar/Canadian Loonie pair was choppy between 1.2560 and 1.2648. The BOC is widely expected to raise its Overnight Rate to 1.5% from the current 1.0%. The Dollar Index (USD/DXY), a popular measure of the Greenback’s value against a basket of 6 major currencies, rebounded 0.45% to 101.78 from 101.50. Overnight, the DXY traded between a low at 101.41 and a high at 102.17. The benchmark US 10-year bond yield soared 10 basis points to 2.84%. Which saw the yield sensitive USD/JPY pair rally to an overnight peak at 128.89 from 127.70 yesterday before settling at 128.70, up 0.71%. The Euro (EUR/USD) had a roller coaster ride, initially falling to an overnight low at 1.0679 before spiking to 1.0775 high, settling back lower at 1.0735. Eurozone Harmonized Index of Consumer Prices rose to 8.1% against estimates of 7.7% and a previous 7.4%. Meantime the pressure on some European countries intensified after Russia cut-off gas supplies to those who refused to pay in Roubles. Sterling (GBP/USD) finished little changed at 1.2600 (1.2615) after trading in a choppy overnight range between 1.2560 and 1.2648. The Australian Dollar (AUD/USD) edged up to settle at 0.7175 from 0.7167 yesterday. Overnight, the Aussie Battler hit a high at 0.7204. Against the Asian and Emerging market currencies, the US Dollar was more subdued with liquidity thin for month-end. The USD/SGD pair finished at 1.3702 (1.3698) while USD/THB (US Dollar-Thai Baht) rallied to 34.30 from 34.12.

Wall Street stocks dipped in thin trade after the rise in bond yields. The DOW closed 33,060 from 33,270 while the S&P 500 was last at 4,135 (4,165). Other global bond yields were higher. German’s 10-year Bund yield closed at 1.12% (0.96%) while the UK 10-year Gilt rate was last at 2.10% (1.92%).
Data released yesterday saw Japan’s April Unemployment Rate ease to 2.5% from 2.6%. Japanese April Industrial Production slid to -1.3% from a previous 0.3% and lower than median estimates at -0.2%. China’s May Manufacturing PMI rose to 49.6 from 47.4, matching median forecasts at 49.6. Chinese Non-Manufacturing PMI missed estimates at 50.7 with a reading at 47.8. New Zealand’s ANZ Bank May Business Confidence fell to -55.6 from a previous -42, and lower than estimates at -33.2. Australia’s April Building Permits (m/m) fell to -2.4% missing forecasts for a 2% rise. Switzerland’s Q1 GDP (q/q) climbed to 0.5% from 0.2%, beating expectations at 0.4%. Germany’s May Unemployment Rate was unchanged at 5%, matching median forecasts. Canada’s March GDP (m/m eased to 0.7% from a previous 0.9%, but higher than forecasts at 0.5%. US Chicago Purchasing Managers Index for May rose to 60.3 from 56.4, beating forecasts at 55.

EUR/USD – The Euro settled lower to finish at 1.0735 at the close of trade in New York. Overnight, the shared currency soared to a high at 1.0775 before easing at the close. News that Russia cut off gas supplies to European countries who refused to pay in Russian Roubles weighed on the Euro. The war in Ukraine has seen European nations struggle to stay united.

USD/JPY – Against the yield sensitive Japanese Yen, the Greenback soared to an overnight high at 128.89 from its opening at 127.55 before easing to settle at 128.70. The benchmark US 10-year Treasury bond yield rebounded to 2.84% from 2.74% (Monday). In contrast, Japan’s 10-year JGB rate was up one basis point to 0.23%.

USD/CAD – Closed at 1.2650 from 1.2730 on Monday. The Canadian Loonie was the only major currency that rallied against the Greenback. This is ahead of tonight’s Bank of Canada interest rate meeting where policymakers are widely expected to raise the Overnight Rate by 50 bp to 1.5%. Overnight low traded was at 1.2629.

AUD/USD – The Aussie Battler edged lower to 0.7175 from 0.7204 in late New York. Overnight low traded was at 0.7150. Australia’s May Building Approvals fell to -2.4% against median forecasts for +2.2% while April’s Approvals were revised lower to -19.2% (-18.5%). Australia releases its Q1 GDP later today. Chinese Caixin Manufacturing PMI is also due out today.

On the Lookout: June kicks off with heavy schedule of economic calendar releases. Australia started with its AIG May Manufacturing Index which fell to 52.4 from April’s 58.5. The UK releases its BRC Shop Price Index (y/y no forecasts, previous was 2.7%). Japan releases its Jibun Bank May Final Manufacturing PMI (f/c 53.2 from 53.5). Australia follows with its GDP Growth Rate (q/q f/c 0.5% from 3.4%; y/y f/c 2.9% from 4.2%). China releases its Caixin May Manufacturing PMI (f/c 48.0 from a previous 46.0 – ACY Finlogix). Germany starts off Europe with its April Retail Sales (m/m f/c -0.2% from a previous -0.1%; y/y f/c 4% from -2.7% - ACY Finlogix). The UK follows with its Nationwide Housing Prices for May (m/m f/c 0.6% from 0.3%; y/y f/c 10.5% from 12.1% -ACY Finlogix). Switzerland releases its May Manufacturing PMI (f/c 61 from 62.5). Germany follows with its May Global Manufacturing PMI (f/c 54.7 from 54.6). France releases its May Global Manufacturing PMI (f/c 54.5 from 55.7). The Eurozone reports its May Global Final Manufacturing PMI (f/c 54.4 from 55.5). Italy releases its April Unemployment Rate (f/c 8.3% from 8.3% -ACY Finlogix). The Eurozone April Unemployment Rate is next (f/c 6.8% from 6.8% -ACY Finlogix). Canada kicks off North American data with its May Global Manufacturing PMI (no f/c, previous was 56.2). The Bank of Canada announces its Interest Rate Decision. Finally, the US releases its ISM May Manufacturing PMI (f/c 54.5 from 55.4), and US JOLTS Job Openings for April (f/c 11.4 million from 11.549 million). US Federal Reserve FOMC members Williams and Bullard are expected to speak at different events.

Trading Perspective: The Dollar Index rebounded following its 2-day fall this week in another volatile trading session. We can expect more of the same with the Greenback holding its lower levels against various Rivals. Only the Canadian Dollar is expected to gain versus the Greenback on the expected rate increase by the Bank of Canada at its policy meeting (midnight 12 am Sydney). Global Manufacturing PMIs are expected to fall following the disruptions from war in Ukraine. Any diversions from the expectations will move markets. Meantime global inflation is expected to stay elevated. From current levels, expect the Greenback to gain back overall support that it’s lost in the past few trading sessions.

EUR/USD – The shared currency peaked at 1.0775 overnight highs, settling at 1.0735 in late New York trade. For today expect immediate support to be found at 1.0700 followed by 1.6070 and 1.0640. Immediate resistance lies at 1.0750 and 1.0780. Look for another choppy trading day in the Euro. Likely range today 1.0670-1.0770. Preference is still to sell rallies.

AUD/USD – The Aussie Battler edged lower to 0.7175 from 0.7204 overnight highs. The Aussie has rallied from last Friday’s low at 0.7091 to last night’s high. Expect the Aussie Dollar to consolidate in a likely range today between 0.7130 and 0.7230. Prefer to sell into Aussie Dollar strength today.

USD/CAD – Expect a volatile session in the Canadian Dollar today into the Bank of Canada’s interest rate meeting and announcement. Overnight the USD/CAD pair traded to a low at 1.2629 from Monday’s 1.2730 before settling at 1.2650 at the New York close. If the BOC does hike rates as expected to 1.5% from 1%, expect an initial fall in the USD/CAD pair before rallying. Traders will also be watching any comments from Tiff Macklem.

(Source: Finlogix.com)

USD/JPY – Against the Japanese Yen, the Greenback rallied to 128.70 from 127.50 yesterday. The catalyst was the jump in the US 10-year bond yield to 2.84% from 2.74%. Japanese JGB bond rates were up by 1 basis point to 0.23%. Overnight high traded was at 128.89 while the low recorded was at 127.63. Expect another volatile, roller coaster session in this currency pair, likely range today 127.80-129.00. Just trade the range on this one, there’s a lot in it.