Dollar Dips, Powell Sees “Soft Landing”; CAD Extends Gains

Michael Moran, Senior Currency Strategist at ACY Securities

12.01.2022 07:30 am

#stocks

Summary: Fed Chair Jerome Powell stated that the Federal Reserve should be able to raise interest rates without damaging the job market in hearings before the US Senate. The Dollar eased against its Rivals with the Canadian Loonie outperforming. Oil prices soared an average of 4% while Gold and Silver climbed above 1%. The Dollar Index (USD/DXY), which measures the value of the Greenback against a basket of 6 major currencies, settled 0.37% lower to 95.62 (95.89 yesterday). The US Dollar lost 0.66% against its Canadian counterpart (USD/CAD) to 1.2582 from 1.2662. In late New York trade, Sterling (GBP/USD) rallied 0.35% to 1.3627 from 1.3587 while the Euro (EUR/USD) was up at 1.1367 from 1.1340, up 0.36%. Stronger commodity prices lifted the Australian Dollar to 0.7210 (0.7182) while the Kiwi (NZD/USD) gained 0.27% to 0.6783 from 0.6765 yesterday. Against the Japanese Yen, the Dollar (USD/JPY) was little changed at 115.35 from 115.30 yesterday. The Greenback slumped against the Asian and Emerging Market currencies. USD/THB (Dollar-Thai Baht) slid to 33.30 from 33.57 while the USD/SGD pair (US Dollar-Singapore Dollar) dipped 0.40% to 1.3505 (1.3552). Global bond yields were steady. The benchmark US 10-year Treasury yield settled at 1.75% (1.76% yesterday). Two-year US bond rates were unchanged at 0.90%. Germany’s 10-year Bund yield rose to -0.03% from -0.04% yesterday. Japan’s 10-year JGB rate was last at 0.14% (0.13% yesterday).
Data released yesterday saw UK BRC Retail Sales climb 0.6%, beating estimates at 0.3%. Australia’s December Retail Sales jumped 7.3% from the previous month’s 4.9%, beating forecasts at 3.5%. Australia’s Trade Balance dipped to +AUD 9.42 billion from a downward revised +AUD 10.78 billion from +AUD 11.22 billion previously. Japan’s Leading Indicators climbed to 103.0%, bettering expectations of 102.9%. Italy’s Retail Sales fell to -0.4% from +0.2%, missing estimates at 0.3%. The US IBD/TIPP Economic Optimism Index eased to 44.7 from 48.4.

USD/CAD – Canada’s Loonie extended its outperformance against its southern counterpart. The US Dollar tumbled to an overnight low at 1.3561 Canadian Dollars before rallying to settle at 1.2585. Yesterday, the USD/CAD opened at 1.2665. Higher Oil and commodity prices boosted the Loonie which has been oversold against the Greenback.
AUD/USD – the generally weaker Greenback and robust performance by the resource and Asian and Emerging Market currencies lifted the Aussie Battler. AUD/USD settled at 0.7210 from 0.7182 opening yesterday. Overnight the AUD/USD traded to a high at 0.7213.
GBP/USD – The British currency rallied to finish at 1.3627 against the US Dollar. GBP/USD traded to an overnight high at 1.3630 after opening at 1.3587 in Asia yesterday. UK BRC Retail Sales beat estimates which buoyed the British Pound.
EUR/USD – the shared currency rallied against the broad-based weaker Greenback to 1.1367 from 1.1340 yesterday. Improved risk appetite supported the Euro despite disappointing Italian Sales data. Overnight high for the EUR/USD pair was at 1.1375.

On the Lookout: Today’s economic calendar sees the release of crucial Chinese and US inflation data. Japan kicks off with its Reuters January Tankan Manufacturing Index (no f/c, previous was 22), Japanese Annual Bank Lending report for December (no f/c, previous was 0.6%, Japanese November Current Account (f/c +JPY 585 billion from +JPY 1018.7 billion – ACY Finlogix). Japanese markets will be closed today, celebrating this Coming-of-Age Day. China follows with its December CPI (m/m f/c 0.2% from 0.4%; y/y f/c 1.8% from 2.3% - ACY Finlogix). Chinese December PPI follows (y/y f/c 11.1% from 12.9%). Japan releases its Eco Watchers Current Survey for December (no f/c, previous was 56.3). Germany starts off Europe with its December Wholesale Prices (m/m no f/c, previous was 1.3%; y/y no f/c, previous was 16.6% - ACY Finlogix). China releases its December New Yuan Loans (f/c CNY1250 billion from previous CNY 1270 billion – ACY FInlogix). The Eurozone release its November Industrial Production (m/m f/c 0.5% from 1.1%; y/y f/c 0.6% from 3.3% - ACY Finlogix). Finally, the US releases its December CPI (m/m f/c 0.4% from 0.8% - ACY Finlogix), US December Core CPI (m/m f/c 0.5% from 0.5% - ACY Finlogix), US December Annual CPI (y/y f/c 7% from 6.8% - ACY Finlogix), US December Annual Core CPI (y/y f/c 5.4% from 4.9% - ACY Finlogix).

Trading Perspective: Last night’s US Dollar performance suggests that it is in a corrective mode. The strong Dollar story is still intact, but the speculative market is carrying long USD bets. Unless we see much stronger than forecast US inflation data, its difficult to see significant, broad based USD gains versus its Rivals. That’s the sense I get from the price action this week. It’s still early days and traders looking for big moves need to be patient. Keep an eye on the US December Annual Core inflation number. Forecasts are for a rise to 5.4% from the previous 4.9%. A rise of 5.6% or higher could ignite a powerful Dollar rally. Watch the US bond yields too. The US 10-year note rate closed at 1.75%, its highest in almost a year. A break above 1.80% could see 2.0%. Which would lift the Dollar Index (USD/DXY) to the 96.00-20 area. A disappointing Annual Core CPI read of say 4.9% or lower will see more specs unwind USD longs. The USD/DXY would tumble to 95.30-50 support levels. Happy days, we could be in for some fireworks later.

AUD/USD – The Aussie Battler rebounded against the overall weaker Greenback and the market’s improved risk appetite. Stronger Oil and Base metal prices also buoyed the AUD/USD pair. Today, immediate resistance lies at 0.7215 (overnight high 07213). The next resistance level is found at 0.7230 and 0.7260. On the downside, immediate support lies at 0.7190 followed by 0.7160. Look for consolidation in likely range today of 0.7170-0.7220. Prefer to sell rallies unless we see a weak US inflation number.
EUR/USD – the shared currency benefitted from broad-based USD weakness, closing 0.36% higher to 1.1367 (1.1340 yesterday). Overnight high traded was at 1.1375, with immediate resistance found at 1.1385. A clean break above 1.1385 would see the next resistance at 1.1400, and possibly 1.1430 tested. Immediate support lies at 1.1340 followed by 1.1310 (overnight low traded was at 1.1313). Look for the Euro to trade in a likely range today of 1.1320-90. Preference is to sell rallies.
GBP/USD – The British Pound gained 0.35% against the US Dollar, closing at 1.3627 (1.3587 yesterday). Overnight high traded for the GBP/USD pair was at 1.3630. Immediate resistance for today is found at 1.3640 followed by 1.3670. The next resistance level lies at 1.3700. On the downside, immediate support can be found at 1.359 followed by 1.3565. Look for further choppy trade in this currency pair between 1.3570 and 1.3670.
USD/CAD – Against the US Dollar the Canadian Loonie tumbled further to 1.2567 overnight lows before settling at 1.2582. Yesterday, the USD/CAD pair opened at 1.2662. Higher Oil prices, broad-based US Dollar weakness and a hawkish bent from the Bank of Canada have given the Loonie wings to fly. For today, immediate support for the USD/CAD pair lies at 1.2540, 12510 and 1.2490. On the topside, immediate resistance is found at 1.2600, 1.2640 and 1.2670. Expect more volatile moves in USD/CAD, likely range 1.2550-1.2650. Prefer to buy USD dips, speculators may be getting too bulled up on the Loonie.

Have a good trading day ahead, happy Wednesday.

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