Today's FX Comment

April 9, 2024?

Good morning. I'm not sure about where you live, but yesterday it was pretty cloudy in north Toronto and it really did not make for great eclipse viewing. The definition of irony: you wait 45 years for an eclipse like this only to end up with a cloudy day, lo and behold, 25 minutes after the eclipse ended the sun comes out and there was not a cloud in the sky. Oh, well Toronto gets another shot at a total eclipse in 2099....At least Maple Leaf fans can take solace in a 3-2 OT win over the Penguins last night.

"Lethargic" or maybe "treading water" might be the best way to describe markets this morning as we seem to be in wait and see mode ahead of tomorrow's US CPI/Bank of Canada combo. The inflation print will be a key macro driver to kickstart the markets again.

Overnight, Asian equity markets were mostly higher ex-South Korea. I'm not sure there was any single catalyst, maybe market sentiment was helped by ex-Fed member Bullard who reiterated his call for three rate cuts this year. Fed member Kashkari also noted that while the labour market is still tight, it is no longer "red hot". Warren Buffett's Berkshire Hathaway is also planning to sell Yen bonds, fueling speculation that he is weighing more investments in Japan. European equity markets on the other hand are mostly lower this morning. There really hasn't been any new macro catalyst, we'll have to wait until tomorrow for that. Perhaps sentiment was hurt by reports that Hamas rejected the latest ceasefire proposal and that Israel has set a date for a Rafah invasion in Gaza.

Futures point to a flattish open in North America but we'll call it the calm before tomorrow's storm. Of note we did get the release of the latest NFIB Small Business Optimism index in the US this morning and it came in weaker than expected. Maybe it should change it name to the pessimism index based on these headlines:

- the NFIB Small Business Optimism Index decreased in March to 88.5, the lowest level since December 2012.

- the net percent of owners who expect real sales to be higher decreased eight points from February to a net negative 18%

- Owners’ plans to fill open positions continue to slow, with a seasonally adjusted net 11% planning to create new jobs in the next three months, down one point from February and the lowest level since May 2020.

Remember, monetary policy takes time to work. We're very likely still seeing the impact of prior rate hikes.

FX thoughts: It is still all about US CPI, bond yields and broad moves in the Big Dollar this week. Keep an eye out for intervention from the PBOC and/or the BOJ.

JPY - 152 is in sight, but I'm not sure the market is willing to test it ahead of the inflation print tomorrow. Japan's verbal intervention continues and I would guess that intervention becomes real above 152. If its anything like the most recent intervention in 2022, the BOJ will likely have to hit the market two or three times to be effective. Support 150.20.

AUD - Consumer sentiment was softer, business sentiment was better than expected. At the end of the day, they offset and the Oz is moving higher again this morning. Copper has been on fire and iron ore is moving higher, both support AUD. Resistance close by at .6630 with .6720 the major topside level. Support .6540.

EUR - The ECB should tee up a June rate cut later this week. In the meantime it will be about CPI and broader moves in the US Dollar. We are right on resistance at 1.0870 this morning, next level 1.0930. Support 1.0760 and 1.0730.

GBP - UK's BRC retail sales data for March came in above expectations at 3.2% YoY, the fastest rise since August of last year. The print has given Sterling a boost this morning.? The market has 33bps of rate cuts priced in by August and I still feel that is too aggressive.? Support 1.2600 and 1.2540, resistance 1.2740.

CAD - Despite a decent headline NFP print, the US Dollar is weaker against almost every G10 currency this month, except Yen and you guessed it, the Canadian Dollar. I know last week's Canadian employment data was below expectations but its not like we saw massive job losses and to put it in perspective, we are coming off seven straight months of gains dating back to last September with +224k jobs created over that period. I think Canada was entitled to a flat print this month...Of course tomorrow's BOC is a bit of a wildcard. Just how dovish will Governor Macklem be? Here's a thought, what if he's not that dovish at all. I think the BOC should look through shelter inflation, I think the BOC will be cutting in June but at the end of the day Governor Macklem might be fearful of sparking that Spring housing market rally and might not want to sound overly dovish. Inflation has fallen nicely, but the Governor can say there is more work to do, can point to stronger GDP and simply say "cuts are likely this year but we remain data dependent". I mean the market already has about 20bps priced in for June and about 68bps for this year. I don't feel Macklem will be any more dovish to move that needle and have the market price in even more cuts. Then again, he does tend to surprise at times....Commodity currencies are up anywhere from 1.9%-2.9% MTD versus the US Dollar. Maybe CAD has some catching up to do. Resistance 1.3600-20, support 1.3500.

Good luck.

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