Currency market: USD interest and exchange rates

Canada’s two main interest rates are CORRA or Canada Overnight Repo Rate Average and OMMFR or Overnight Money Market Finance Rate.

The proper position is OMMFR trades below CORRA in order to borrow low and sell high. OMMFR is the protection rate so CORRA never trades to zero or negative. And also so the exchange rate doesn’t trade out of control.

Many central banks offer a protection interest rate. The BOJ for example uses the Overnight Call rate Vs the Interest rate applied to Deposit Facility as protection rates. Both now trade at 0.979 Vs Deposit Facility at 0.90.

From the BOJ. However, with the completion of the deregulation of interest rates in 1994, the direct link between the official discount rate and deposit rates disappeared. In its place, various interest rates are now determined by arbitrage activities in financial markets. In such a situation, the previously adopted official discount rate is now called the basic loan rate — the loan rate applied to the Complementary Lending Facility — and acts as a ceiling on the uncollateralized overnight call rate.

A Floor and ceiling and where is found the exchange rate

Call rates trade above the deposit facility rate just as OMMFR trades above CORRA. These are misalignments as OMMFR must trade below CORRA and explains USD/CAD shorts. Japanese Call rates must trade below the Deposit Facility and explains USD/JPY shorts.

From CORRA and OMMFR comes next short term yields and the same for Japan and the BOJ.

Switzerland        London, Libor 3

CHF        CHF        USD       JPY         GBP       EUR

SARON M 1         Call money rate (Tomorrow next) M       Money market debt register claims of the Swiss Confederat… 3-month M 2          1-month M         3-month M         6-month M         12-month M       3-month M         3-month M         3-month M                3-month M

2019-12                -0.659    -1.000    -0.751    -0.781    -0.688    -0.622    -0.481    1.908     -0.047    0.792     -0.414

2020-01                -0.702    -0.850    -0.762    -0.773    -0.690    -0.641    -0.506    1.751     -0.057    0.765     -0.416

2020-02                -0.707    -0.800    -0.762    -0.825    -0.735    -0.707    -0.602    1.463     -0.076    0.673     -0.471

2020-03                -0.666    -1.250    -0.750    -0.780    -0.655    -0.571    -0.452    1.451     -0.049    0.596     -0.255

2020-04                -0.659    -0.850    -0.719    -0.722    -0.583    -0.560    -0.441    0.556     -0.003    0.594     -0.185

2020-05                -0.660    -0.850    -0.734    -0.761    -0.651    -0.597    -0.478    0.344     -0.041    0.228     -0.347

2020-06                -0.662    -0.900    -0.734    -0.767    -0.676    -0.626    -0.472    0.302     -0.047    0.141     -0.422

2020-07                -0.704    -0.850    -0.738    -0.788    -0.705    -0.656    -0.528    0.249     -0.055    0.084     -0.445

2020-08                -0.706    -0.830    -0.746    -0.789    -0.720    -0.668    -0.525    0.241     -0.058    0.064     -0.509

2020-09                -0.714    -0.850    -0.746    -0.805    -0.781    -0.726    -0.598    0.234     -0.104    0.061     -0.520

2020-10                -0.718    -0.830    -0.790    -0.805    -0.767    -0.733    -0.625    0.216     -0.103    0.045     -0.530

2020-11                -0.721    -0.830    -0.805    -0.842    -0.784    -0.732    -0.612    0.228     -0.117    0.045     -0.552

2020-12                -0.726    -0.850    -0.782    -0.813    -0.764    -0.725    -0.610    0.238     -0.083    0.026     -0.566

Above is CHF and the SNB. The CALL Money Rate at 0.341 trades above Debt Register Claims at 0.249 and is misaligned. Explains USD/CHF shorts.

V39050: Overnight Money Market Financing Rate

V39050: Overnight Money Market Financing Rate

Low        2021-01-14          0.1973

Average               2021-01-11 — 2021-01-14             0.2010

High       2021-01-13          0.2047

Date      V39050

2021-01-11          0.2005

2021-01-12          0.2015

2021-01-13          0.2047

2021-01-14          0.1973

Canadian Overnight Repo Rate Average (CORRA) (%): Canadian Overnight Repo Rate Average (CORRA) (%)

Canadian Overnight Repo Rate Average (CORRA) (%): Canadian Overnight Repo Rate Average (CORRA) (%)

Low        2021-01-15          0.1500

Average               2021-01-11 — 2021-01-15             0.1880

High       2021-01-13          0.2000

Date      Canadian Overnight Repo Rate Average (CORRA) (%)

2021-01-11          0.2000

2021-01-12          0.2000

2021-01-13          0.2000

2021-01-14          0.1900

2021-01-15          0.1500

Above is Canada and shown is OMMFR trades above CORRA and is misaligned. If one central bank has a problem then all have problems. Deeply affects the exchange rates. If OMMFR drops below CORRA then long USD/CAD. Debt Register Claims drops below Call Money rate then long USD/CHF. If Call rates drop below the Deposit facility then Long USD/JPY.

USD/JPY desperately requires an expansion of its interest rate range so USD/JPY will move. Until that happens, stay clear USD/JPY.

USD Vs EM

As CAD, JPY and CHF contains misalignments to its main interest rates so does EM currencies arranged as USD/Other currency.

USD/PLN

From NBP or the Polish Central bank.

Reference rate (minimum money market intervention rate) 1)  0.10        2020-05-29

Lombard rate     0.50        2020-05-29

NBP deposit rate              0.00        2020-05-29

Rediscount rate                0.11        2020-05-29

Discount rate     0.12        2020-05-29

The Discounts rates are barely hanging on. The Lombard Rate dropped from 2.50 since May 2020 while the Deposit rate dropped from 0.50 and headline sits at 0.10. Polish interest rates are misaligned as all USD currency pairs and explains shorts. May 2020, USD/PLN traded 4.24 and today 3.72.

Run through all central banks and what is found is misaligned interest rates and a problem for USD/Other Currency Pair