Today's FX Comment

July 10, 2024?

Good morning and congrats to Team Canada for a great run at Copa America. In the end, Argentina and Messi were just too much.

I think the last 24 hours have been relatively supportive for overall risk sentiment. Central bankers have been more accommodative/dovish sounding and inflation has surprised to the downside.

Overnight, Asian indices were mixed with the Nikkei once again leading the way higher. The RBNZ held rates steady as expected (8th straight pause) but leaned dovish by dropping their tightening bias noting inflation would approach their target by year end. The market is now pricing in an October rate cut in New Zealand. Chinese inflation data was also very tame, actually pretty much non-existent with the month over month number down -.2% and the year on year print softer than expected at +.2%. No doubt China will keep exporting goods disinflation around the world.

European markets are all in the green this morning. We saw more good news on the inflation front out of Norway where CPI data was much softer than expected as well. The YoY print came in at 2.6% hitting a three year low. I suppose no surprise that Kiwi and NOK are both softer and are the two big currency movers today.

As we prepare for part two of Jay Powell testimony futures point to gains on the open in North America. I'm not sure the Chair can say anything all that new today, really he said all he needed to say yesterday. The most recent labor market data sends a signal of cooling with Powell noting that the labour market is no longer a source of inflationary pressure. That about says it all. Tomorrow's CPI data will obviously be a key near term driver but with Core PCE at 2.57% and the labour market seemingly sufficiently cooled we are moving closer to a September Fed rate cut.

FX thoughts:

JPY - Japan's 20 year yield rose to the highest level since 2011 overnight as Japan's bond market participants meeting yesterday saw recommendations for the BOJ to reduce monthly JGB purchases. The jump in yields hasn't helped the Yen though with USDJPY trading a bit higher this morning. You would have to think that eventually the combo of BOJ hikes and Fed cuts (when that in fact happens) helps to put a lid on USDJPY. Resistance 162 and 163.35.

AUD - The RBNZ may have dropped their tightening bias but the RBA can't take the possibility (no matter how slim) of another rate hike off the table quite yet. Resistance .6775 and .6825, support .6680. With equities looking well supported I like buying dips here.

EUR - Not much to say here this morning. Plenty of resistance around 1.0900 with support at 1.0770. Which side we test likely depends on tomorrow's US CPI data. London traders are probably already in the pub prepping for today’s Euro Cup match….

GBP - The BOE's Chief Economist Huw Pill will be speaking shortly and no doubt the market will be scanning the headlines for hints about a potential August 1 rate cut. If the central bank wants to go it probably needs to start sending the signal sooner rather than later. We have a slew of UK economic data tomorrow morning including GDP and that might tip the scales one way or the other for August. Next topside levels are the 1.2894 high from March of this year followed by the 1.2996 high from last July, initial support 1.2770.

CAD - The market is short CAD. Stocks keep grinding higher, oil looks pretty comfortable above $80 and the Western Select spread has improved over the last few sessions. All that points to a move lower for USDCAD but clearly we'll need to see an as expected or softer US CPI print tomorrow for Funds to take a real run at 1.3600. A weaker inflation print might just trigger a break of key support (200 day MA = 1.3592) and trigger some healthy position liquidation. Topside levels are 1.3665 and 1.3730.

Good luck.