FX Settle: Central banks in focus, BOC first up, Loonie steady

DXY edges up, EUR dips, USD/JPY climbs, AUD gains into CPI

Summary: FX markets settled ahead of key central bank policy meetings which begin with the Bank of Canada (Sydney 1 am, Thursday, 28 October). Tomorrow, the Bank of Japan and the European Central Bank meet on policy. Next week sees the Reserve Bank of Australia, the Bank of England, the US Federal Reserve and Norway’s Norges Bank have their meetings on interest rates and policy. The Dollar Index (USD/DXY), a popular measure of the Greenback’s value against a basket of 6 major currencies edged 0.13% higher to 93.93 (93.83 yesterday). Against the Canadian Loonie, the US Dollar (USD/CAD) was little changed at 1.2387 from 1.2386. The Euro dipped further against the Greenback to 1.1600 from 1.1612. Sterling closed flat at 1.3763 (1.3766) after trading to an overnight high at 1.3829. Despite lower US bond yields, USD/JPY pair climbed to 114.13 (113.73). The Australian Dollar (AUD/USD) settled with modest gains to 0.7504 from 0.7494 heading into today’s release of Australia’s Q3 CPI report. New Zealand’s Kiwi (NZD/USD) dipped to 0.7162 from 0.7169. The Greenback was mixed against the Asian and Emerging Market Currencies. USD/SGD (US Dollar-Singapore Dollar) closed at 1.3474 (1.3470) while the USD/THB pair (US Dollar-Thai Baht) rallied to 33.22 from 33.05. USD/CNH (Dollar-Offshore Chinese Yuan) eased to 6.3775 (6.3825).

Global treasury bond yields were mixed. The benchmark US 10-year bond yield dipped to 1.61% from 1.63%. US 2-year bond rates rose to 0.45% (0.43%). Germany’s 10-year Bund yield was flat at -0.12%. The UK 10-year Gilt rate settled at 1.10% from 1.14%. Japan’s 10-year JGB yield was unchanged at 0.10%. Wall Street stocks were mixed. The DOW finished at 35,777 (35,757) while the S&P 500 was flat at 4,575.

Data released yesterday saw Japan’s Annual Services Producer Price Index (SPPI) dip to 0.9% from 1.0%, lower than estimates at 1.1%. The Bank of Japan’s Annual Core CPI rate rose to 0.6% from 0.3%, and higher than forecasts at 0.3%. UK CBI Realised Sales climbed to 30 from 11, bettering median expectations at 14. The US September House Price Index slipped to 1.0% from 1.4%, lower than analyst’s estimates of 1.5%. US Annual S&P Case Shiller Composite-20 HPI eased to 19.7% from 20.0%, lower than economist’s forecasts at 20.1%. US Conference Board Consumer Confidence rose to 113.8 from an upward revised 109.8, beating forecasts at 108.4. US New Home Sales rose 800,000 beating expectations of 755,000 and a previous downward revised 702,000 (from 740,000).

• USD/CAD – The Greenback settled at 1.2387 Canadian Loonie, little changed from 1.2386 yesterday. Overnight, the USD/CAD pair slipped to a low at 1.2350, before steadying at the close. Despite the Bank of Canada’s tapering of bond purchases which began in April and has continued since, the USD/CAD has steadily dropped from around 1.28 to its current 1.2390 the past 2.1/2 months.
• EUR/USD – slip-sliding away. The Euro continued to trade heavy, albeit at a reduced pace. The shared currency finished at 1.1600 (1.1612 yesterday). Overnight the EUR/USD pair traded to a low at 1.1585. Overnight high traded was at 1.1626.
• AUD/USD – The Aussie Battler rose moderately to finish at 0.7504 from 0.7494 yesterday. Trade in the risk leading Aussie Dollar was subdued, with the overnight low traded at 0.7489. The overnight peak recorded was at 0.7525.
• USD/JPY – The Greenback climbed against the Japanese Yen despite a two-basis point drop in the US 10-year bond yield to 1.61%. Risk appetite was overall positive which provided the lift for the USD/JPY pair. Overnight high traded was at 114.31.

On the Lookout: Economic data releases pick up today with New Zealand first up, just releasing its September Trade Balance, which was a Deficit of -NZD 2,171 million against a previous -NZD 2,139 million. NZ September Exports rose to NZD 4.4 billion from NZD 4.36 billion. NZ Imports were slightly higher to NZD 6.57 billion from NZD 6.5 billion. The Kiwi was little changed, at 0.7161 following the release of the data. Australia releases its Q3 Headline and Trimmed Mean CPI next. Headline CPI (q/q f/c 0.8% from previous 0.8%; y/y f/c 3.1% from 3.8% - ACY Finlogix), Trimmed Mean CPI (q/q f/c 0.5% from 0.5%; y/y f/c 1.8% from 1.6% - ACY Finlogix). China follows next with its September Industrial Profits (no f/c, previous was 49.5%). Germany kicks off European data with its November GFK Consumer Confidence (f/c -0.5 from a previous 0.3). Germany’s September Import Prices follow (m/m f/c 1.5% from 1.4%, y/y f/c 18% from 16.5%). French October Consumer Confidence is next (f/c 101 from 102 – ACY Finlogix). Switzerland releases its October Economic Sentiment Index (no f/c, previous was 25.7). The US releases its September Durable Goods Orders (m/m f/c -1.1% from previous 1.8%), US Core Durable Goods Orders (m/m f/c 0.4% from 0.2%). The US rounds up today’s economic releases with its Advance Goods Trade Balance for September (no f/c, previous was -USD 87.6 billion). The UK government releases its Autumn Budget. The Bank of Canada is expected to keep its Overnight Rate unchanged at 0.25%. The BOC’s Rate Statement and Press Conference follows.

Trading Perspective:  The US Dollar was little changed with mixed results against its Rivals. Upcoming central bank meetings will be the focus of FX in the coming days. All eyes will be on the Canadian Loonie today. The Bank of Canada became the first major central bank to trim bond purchases in April, following up with an additional trim in July. And are expected to do so at this meeting. Yet, Canada’s Loonie has largely appreciated against the Greenback in the past two months. This has been the result of much better-than-expected Canadian economic data. Canada’s Jobless Rate fell to its lowest in level in 18 months (6.9%). There were improvements in Retail Sales while CPI accelerated in September. FX markets have moved on from central bank tapering moves to the timing or rate hikes.

Australia releases its Headline and Trimmed-Mean CPI report today. The Trimmed-Mean CPI is the RBA’s preferred read of Australia’s inflation rate. Asian FX traders will zoom into this reading and its effect on the Australian Dollar today.

On the US side, the US Durable Goods Orders for September will be the focus of the markets today.

• USD/CAD – all eyes on the Bank of Canada today. If the Bank of Canada hint at the possibility of rate hikes happening before the second half of 2022 the Canadian Loonie could soar anew. If the BOC stick to what they said in their last meeting (ie no rate hikes until the second half of 2022), the Canadian Loonie would tumble, ie the USD/CAD pair could rocket higher. Immediate support today lies at 1.2350 followed by 1.2320 and 1.2280. Immediate resistance can be found at 1.2410, 1.2440, and 1.2480. We could be in for a wild one today. Tin helmets on for all Loonie traders today. Keep your wits about to prevent you from going “loonie”. Prefer to buy USD/CAD dips.

(Source: Finlogix.com)

• AUD/USD – The Aussie Battler settled just above the 0.75 cent threshold, at 0.7504. Overnight the AUD/USD pair traded to a high at 0.7525. This is where immediate resistance lies. The next resistance level is found at 0.7550 and then 0.7600. Immediate support can be found at 0.7480, 0.7450 and 0.7420. Look for a likely trade today between 0.470-0.7530. Prefer to sell AUD/USD rallies.
• EUR/USD – The shared currency continues to trade under pressure. The ECB has its interest rate policy meeting and press conference tomorrow (Thursday evening at 10.45-11.30 pm Sydney). The ECB is expected to retain its current course for monetary policy which has weighed on the EUR/USD pair. For today, immediate support for the Euro lies at 1.1585 followed by 1.1555 and 1.1525. Immediate resistance lies at 1.1625 and 1.1660. Look for consolidation in a likely range today of 1.1580-1.1630. Just trade the range shag on this one.
• USD/JPY – Against the Japanese Yen, the US Dollar rallied to 114.13 from 113.73 despite a lower US 10-year bond yield. Risk appetite was steady after last week’s roller coaster ride. Overnight USD/JPY traded to a high at 114.31. Immediate resistance for today lies at 114.30 followed by 114.60. Immediate support can be found at 113.75 (overnight low traded was 113.72). The next support level is found at 113.45. Look for the USD/JPY pair to consolidate in a likely trading range today of 113.75-114.35.