Today's FX Comment

November 1, 2024?

Good morning and TGIF. It is the start of a new month and a new fiscal year for Canadian banks, however the number one thing to do today: stay away from the leftover Halloween candy...?

We are heading into the weekend after what has a been a very busy week with plenty of month end related re-balancing, not just with respect to FX but across all asset classes. Rest up though because next week promises to be another interesting one with the long awaited US election finally here and another Fed rate cut on tap.?

The Mag 7 earnings parade continued last night after the bell with Apple and Amazon reporting. Both companies beat on the top and bottom lines with Amazon up about 6% pre-open while Apple is about 1.5% lower as blowing away earnings estimates isn't enough, we need to see more results from Apple Intelligence. The bar is always set high for these stocks

Given the weak handoff from North America yesterday I guess it is no surprise Asian equity markets were mostly lower overnight. The Nikkei led the way with a 2.5% drop as Japanese equities also continue to digest this week's more hawkish sounding BOJ (if you can actually call a bank with a 25bp target rate hawkish at all). The Hang Seng was the outperformer ending the session higher on the back of better than expected Caixin manufacturing PMI out of China which moved back into expansionary territory. Anyone notice lately the Chinese data is getting better? Still a long way to go but maybe all the stimulus is starting to have an impact. Get ready for more if Trump wins next week.

European indices are all trading higher this morning likely cheered by the decent tech earnings. The bounce in stocks has come despite reports that Iran is preparing an imminent attack on Israel from Iraqi territory. I guess sadly the market is becoming more immune to this type of headline now. Oil has climbed this morning though with WTI back above $70 to start the day.

Futures point to gains on open in North America ahead of today's NFP release. I saw a headline today that said traders will be "scouring" the data for clues ahead of next week's Fed meeting. I don't think there will be too much scouring going on. I think most would agree that today's release will be impacted by strikes and hurricanes and might not be the best gauge of the health of the US labour market. There is an exceptionally wide range of forecasts but Bloomberg's estimate is for a +100k number. After the stronger ADP and claims data the "whisper" number is higher at +136k so the market is prepped for a stronger print. I would say a weaker number will be brushed off by the market as a one off impacted by weather (unless it is a negative print, that will still spook the market), a stronger release, say 170k+ will be more impactful as the market will probably be "adding in" a significant number of jobs given the strikes and hurricanes. In the end, today's NFP won't change the Fed's mind next week, they will be cutting 25bps one way or the other. Highly doubtful they would see the need to go 50bps in September and then take a pass at next week's meeting - not a good look. As for the December Fed meeting, there will be an awful lot for Powell to chew on in between now and then (who knows, all the tariff talk could have stocks down and the US 10 year yield even higher tightening up financial conditions). Maybe too early for today's data to massively impact December in my opinion.

FX thoughts:

JPY - BOJ Governor Ueda leaned hawkish earlier this week but Japanese politicians are trying to push back with Japan's main opposition (DPP) party head Tamaki stating that the BOJ should not raise rates for at least half a year and that monetary policy should not be used to manipulate currency rates. So much for central bank independence. USDJPY has bounced this morning but I do think the BOJ will make the ultimate call and another rate hike(s) is in the cards. Same levels support 150.80, resistance 153.90 and 154.55.

AUD - No change from yesterday's comment, China's stimulus looks like it is slowly starting to work, not a bad thing for the Australian economy. In the meantime, while most CB's are cutting the RBA will be steady as a rock. Long AUD Call spreads are worth a look. Support .6515.

EUR - For now given better EU economic data and slightly hotter inflation, any thought of a 50bp ECB cut in December is off the table. The 200day MA at 1.0870 is still capping the topside in Euro, next level is 1.0910-15.

GBP - UK yields seem to be stabilizing this morning as the market is still debating this week's budget. Will added gilt issuance drive rates higher and weigh on the economy or will infrastructure spending be a boost to the economy. All I know is it isn't as bad as the disastrous 2022 budget where it was all spending with no tax hikes. Support 1.2870, resistance 1.3040-50 in Cable.

CAD - All about broader moves in the US Dollar post-NFP today. We keep running into offers in and around the YTD high at 1.3946 but moves down to a 1.38 handle have been pretty short lived. You know the story here, the market already has the short CAD trade on and positioning is getting a bit stretched. That marginal seller of the Canadian Dollar is getting harder to find.

Have a great weekend.

Good luck.

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