Aussie hops back, CAD climbs, commodities rally, Omicron fears Ebb

Summary: The Aussie Dollar (AUD/USD) hopped back to life, bouncing 0.96% to 0.7115 (0.7035 open yesterday) after the Reserve Bank of Australia held interest rates at 0.1% but removed a reference to inflation which sits within its 2%-3% range in 2023. While some analysts saw as opening the door to an earlier rate hike, at the end of the day, short speculative Aussie bets were forced to cover. A rebound in base metal prices, Nickel +1.9%, Copper 0.6%, and Crude Oil +3.17%, also aided the Aussie and resource currencies. The Kiwi (NZD/USD) rallied 0.53% to 0.6785 (0.6745). China’s decision to cut the RRR by 0.5% yesterday also lifted risk sentiment. Against the Canadian Loonie, the Greenback tumbled 0.91% to 1.2647 from 1.2770 yesterday. The strong rise in Oil prices, one of Canada’s major exports and an improvement in the country’s trade balance boosted the Loonie. Elsewhere, the Euro stayed under pressure, dipping 0.2% to 1.1260 (1.1280). Overnight the shared currency slumped to a low at 1.1227 before steadying. Sterling (GBP/USD) eased modestly to 1.3238 from 1.3252. The Dollar Index (USD/DXY), a measure of the Greenback’s value against a basket of 6 major currencies, was little changed at 96.35 (96.30). Dollar-Yen (USD/JPY) edged higher, up 0.13% to 113.60 from 113.45. Asian and Emerging Market currencies saw modest gains versus the US Dollar. The USD/SGD pair dipped to 1.3660 from 1.3690 while USD/CNH (Dollar-Offshore Chinese Yuan) was last at 6.3650 (6.3755). Versus the Thai Baht, the US Dollar (USD/THB) eased to 33.65 from 33.85.

Wall Street Stocks advanced. The DOW finished up 1.29% to 35,700 (35,215). The S&P 500 was last at 4,683 from 4,593 yesterday, a gain of 1.27%. The US 10-year bond yield climbed 6 basis points to 1.48%. Germany’s 10-year Bund rate was up one basis point to -0.38%. Australia’s 10-year Treasury bond yield was last at 1.64% from 1.57% yesterday.

Data released yesterday saw Australia’s AIG Services Index climb to 49.6 from a previous 47.6. Japan’s Average Cash Earnings dipped to 0.2%, lower than forecasts at 0.5%. Japan’s October Household Spending matched forecasts at -0.6%. Australia’s Q3 House Price Index dipped to 5.0% from 6.7% previously, and median estimates at 5.1%. China’s Trade Surplus eased to +USD 71.7 billion from +USD 84.54 billion, and lower than estimates at +USD 82.75 billion. Switzerland’s Unemployment Rate beat forecasts at 2.5% from 2.6%. The Eurozone Q3 GDP matched estimates at 2.2%. US October Merchandise Trade Deficit was at -USD 67.1 billion, from estimates at -USD 66.9 billion. Canada’s IVEY PMI reading rose to 61.2 from a previous 59.3, better than median expectations of 60.2.

AUD/USD – The Aussie Battler hopped the highest, up 0.96% to 0.7115, finishing as best performing FX. Overnight, the AUD/USD pair traded to a low at 0.7039. A less dovish RBA saw speculative short Aussie bets run for the exits. Overnight high traded was at 0.7123.

USD/CAD – Canada’s Loonie was the next best performing FX, boosted by the jump in Oil prices and a better-than-expected Canadian Ivey PMI report. Overnight the USD/CAD pair tumbled to a low at 1.2635 from its 1.2770 opening yesterday. At the close of New York trade, USD/CAD settled at 1.2647.

USD/JPY – Higher US bond yields and a generally risk-on mode lifted the USD/JPY pair to 113.60 from yesterday’s close at 113.45. Overnight high traded was at 113.78. Japan’s 10-year JGB yield was up one basis point to 0.05%.

EUR/USD – Overhanging bearish sentiment continued to prevent the Euro from advancing. The shared currency finished in New York at 1.1260 from yesterday’s opening at 1.1280. Despite a rally to an overnight high at 1.1298, the Euro reversed and slid back in late afternoon US trade.

On the Lookout: Today’s economic calendar is light. Japan kicks off today’s data releases with its December Reuters Tankan Index (no f/c, previous was 13). Other Japanese data released are its Q3 GDP (f/c -0.8% from previous 0.4% - ACY Finlogix), Japanese October Current Account (+JPY 1308.5 billion from previous +JPY 1033.7 billion – ACY Finlogix), Japanese Eco Watchers Outlook Survey for November (f/c 57.3 from 57.5 – FX Street). Europe follows with France’s Q3 Nonfarm Payrolls (q/q f/c 0.5% from 0.5% - FX Street). The US releases its October JOLTS Job Openings (f/c 10.45 million from previous 10.438 million – Forex Factory).

Trading Perspective: The main event of the day is the Bank of Canada’s rate policy meeting. The BOC is expected to keep its Overnight rate at 0.25%. The BOC policymakers decided to end QE in October and have brought forth guidance for the timing of its 1st rate hike in June 2022.
While the Dollar Index saw a modest rise, the Greenback’s performance against various rivals was mixed. The EUR/USD pair carries the biggest weight in the USD/DXY at 57.6%. The shared currency’s weak performance provided the DXY with a modest rise.

AUD/USD – The Aussie’s bounce was all about short-covering after the Battler hit late 2020 lows at 0.6993. While a less dovish sounding RBA and easing fears on the severity of the Omicron variant enabled the Aussie Battler to bounce highest, the Aussie is in a range. Immediate resistance today lies at 0.7125 (overnight high 0.7123). The next resistance level is found at 0.7155. Immediate support can be found at 0.7090, 0.7060 and 0.7030. Look for the Aussie to trade a likely range of 0.7030-0.7130. Today’s preference is to sell rallies near overnight highs.

EUR/USD – Slip sliding away, the Euro dipped 0.20% to finish at 1.1260 from yesterday’s open at 1.1280. For today, the Euro has immediate support at 1.1230 followed by 1.1200. The next support level is found at 1.1170. On the topside, immediate resistance lies at 1.1290 and 1.1320. Look for further choppy trade in a likely range today of 1.1220-1.1320. Looking to buy dips near overnight lows, the downside move is overdone.

USD/JPY – The Greenback rallied against the yield sensitive Japanese Yen as US treasury bond yields rose. The benchmark 10-year rate climbed to 1.48% from 1.42% yesterday. This should provide support for the USD/JPY pair. Immediate resistance today lies at 113.80 (overnight high 113.78). The next resistance level is found at 114.10. Immediate support can be found at 113.30, 113.00 and 112.70. Look for the USD/JPY pair to consolidate in a likely range today of 113.20-113.90. Just trade the range shag on this puppy today.

USD/CAD – The Greenback had a choppy trading day against the Canadian Loonie. The rebound in Crude Oil prices, a better-than-expected Canadian IVEY PMI report and position adjustments ahead of tomorrow morning’s Bank of Canada policy rate meeting (2 am December 9 Thursday in Sydney) weighed on the USD/CAD pair. The USD/CAD pair closed at 1.2647 from its 1.2770 open yesterday. Overnight low traded was at 1.2635, which is where immediate support lies. The next support level is found at 1.2600 and then 1.2570. On the topside, immediate resistance can be found at 1.2685, 1.2715 and 1.2765. With the recent impact from Omicron, traders and investors will be watching the BOC closely. Look for a choppy trading day on the USD/CAD pair with a likely range of 1.2620-1.2770.

(Source: Finlogix.com)

Yesterday, we highlighted the fact that we are in December markets. Which is a time to keep nimble and stay flexible. FX volatility will stay elevated, and every day could be different. Keep a trading perspective and don’t fall in love with any positions. There’s a hit song in the late 50’s sung by Dinah Washington, entitled “What a Difference a Day Makes”. Worth a listen.