Today's FX Comment

March 28, 2024?

Good morning. I finally got the chance to watch the remake of the movie "Road House" last night. The verdict: stick with the original. Call me nostalgic but you just can't beat Patrick Swayze and Sam Elliott, even the music with Jeff Healey was better......

As we head into the long Easter weekend equities/risk is hanging in there despite the Fed's Waller doing his best to try and torpedo sentiment overnight. Speaking after the close yesterday Waller (whose dot is clearly not in the three rate cut camp) said he was disappointed by inflation data and that recent numbers warrant fewer cuts or a later start to cutting. He then said he would like to see at least a couple of months of better inflation data before cutting. "A couple of months" doesn't sound like that high a bar and still jives with a potential June/July cut (3 more CPI releases in between now the June FOMC including the day of on June 12th). I guess it really comes down to Waller's definition of "better".

Waller's comments don't really fit the narrative that Fed Chair Powell was spinning last week. To me Powell came across as pretty dovish even noting January's hotter inflation data may have been on the back of seasonal effects. I think the Fed really needs to work on their communication strategy. At any rate, we know Waller is one of the most hawkish Fed members and maybe we should take his comments with just a little grain of salt and remember that the most dovish sounding member of Fed also happens to be the Chair. Waller's comments have sent US yields a bit higher (4-5bps in 2's and 5's +2bps in 10 year) and have given the US Dollar a boost to start the session.

Overnight, Asian indices were mixed with gains in Hong Kong and mainland China while Australian stocks hit a record high. President Xi met with several US executives and put his best foot forward stating that China is planning major moves on deepening reform while seeking to build first class business environment. That contrasts sharply with recent accusations of cyberattacks from the US, UK and New Zealand.

European equity markets are all in the green this morning no doubt playing a little catch up to yesterday's late day North American move. We had central bankers heading in different directions today with the ECB's Panetta noting that the conditions for policy loosening were nearing while the BOE's Haskel warned that rate cuts were a long way off in the UK. Futures point to a flat open in North America but it won't stay that way. We have a slew of US economic data to look at this morning (and Canadian GDP as well) which will set today's tone along with maybe some month end/quarter end flow

FX thoughts: Waller's comments coupled with some softer economic data overnight have given the US Dollar a broad lift this morning.

JPY - We know the verbal intervention has been ramping up and we know it is quite likely the BOJ is waiting above 152. We also know the market loves a test and might just keep probing until they find the pressure point. Who will be brave enough to pay 152? I on the other hand prefer to play from the short side, recall Japanese authorities had to intervene a few times back in 2022 but eventually they won and USDJPY traded a fair bit lower. Expect more of the same, they won't intervene once, they'll intervene until they eventually win. Vol is still quite low, option structures make sense to me here. Support 150.10

AUD - The Australian economic data was mixed overnight however data out of New Zealand was very poor (business and consumer confidence) and RBNZ Governor Orr hinted at rate cuts, that weighed on Kiwi which in turn dragged the Oz lower (alongside the Waller comments). If Waller thinks the Fed may not cut as soon/as much, how will the RBA cut when Australian inflation is running even hotter? We are trading just below support at .6500, more support at .6470.

EUR - Maybe holiday thinned trading has amplified the Waller comments a little bit but German retail sales data was a lot softer than expected this morning also weighing on the Euro. Support 1.0760.

GBP - The BOE 's Haskel sounded pretty sensible to me this morning warning against rushing to cut rates as wage growth remained too high. That is absolutely right, wage growth close to 6% is not compatible with inflation returning to target. UK GDP data was as expected today (UK in a technical recession) on the bright side business investment numbers topped expectations. 1.2650 is nearby resistance followed by 1.2740 with support at 1.2590 (200day MA).

CAD – Canadian GDP data was better than expected this morning. Wait a second, softer inflation data, better GDP, could Canada be heading for a soft landing? Stocks have been enjoying a good run, crude has had a nice run and the 1.3600-20 resistance zone has been tested and has held once again (20th time since last November). Long on a 1.36 handle has not proven to be a good trade the previous 19 times, today might be no exception. Support 1.3520.

Have a great long weekend.

Good luck.

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