Today's FX Comment

November 7, 2023

Good morning, it's that time of year again starting to come into work in the dark and go home in the dark. Do we really need to do this time change thing?

After a great start to the month (S&P +4.1%/Nasdaq +5.1%), equities are taking a breather this morning with indices trading lower pretty much everywhere. Some would lay the blame at the feet of Fed member Kashkari who was his usual hawkish self yesterday afternoon stating that he was not convinced that rate tightening was over. I don't buy what he is selling. Kashkari was the most dovish Fed member at one point and he was wrong and he is the most hawkish member now and he probably isn't right at this point either. He didn't say anything new yesterday anyways and I think we need to remind ourselves that just less than a week ago his boss sounded fairly dovish. I would listen a lot more to what Chair Powell has to say then Kashkari.

Overnight, Asian equity markets were all in the red maybe spooked a bit by the Kashkari comments, or maybe just taking a bit of profit after a good run (especially the Kospi). China's trade data was mixed with exports down more than expected but imports rising showing that maybe there is a little life left in the Chinese economy yet. The IMF actually raised China's 2023 and 2024 GDP growth forecasts while recommending that China ease monetary policy via rate cuts while Chinese press continued to report about potential RRR and/or MLF cuts this year.

European indices are all in the red this morning, again maybe a bit more profit taking more than anything. That being said, the Euro zone economic data continues to underwhelm with German industrial production much weaker than expected while Germany's Construction PMI number registered its lowest reading since April 2020. Not a great comparison. Futures point to a lower open in North America and the Fed is back on track with no fewer than seven members scheduled to speak today (including Kashkari again). You know what they are going to say: progress has been made but inflation remains to high, the Fed is committed to returning inflation to 2%, rates are restrictive but they won't hesitate to hike again in order to achieve their inflation target. Hit repeat. Powell speaks Wednesday and Thursday this week, he is the one who really matters, ignore the rest.

FX thoughts: The AUD came under pressure post-RBA, that alongside equity weakness set the tone and lifted the broader US Dollar overnight. I think you can use these rallies to sell the big Dollar.

JPY - USDJPY is back above 150 as the market continues to tempt intervention fate. USDJPY still feels too high to me given where ten year yield spreads are trading. Use rallies to put on longer dated USDJPY downside trades.

AUD - The RBA hiked rates as expected last night but it became a very familiar buy the rumour/sell the fact event as the market has determined it was a dovish hike. The wording of the statement was changed from “some further tightening of monetary policy may be required” to “whether further tightening of monetary policy is required". You can interpret that as dovish if you wish but to me the door is still open to further hikes and I think the RBA will be forced to do so with core inflation far too high, they are just drawing things out. They will still be hiking when most other central banks will be considering cuts. Remember the RBA raised their inflation forecasts last night as well. Outside of the RBA it looks like relations between China and Australia are continuing to warm up with Australian PM Albanese in China. I think you buy this dip in the Oz.

EUR - The German economic data was not great to say the least sending the Euro lower this morning. It feels like the range has shifter higher now though. Support 1.0590-1.0610, resistance 1.0800.

GBP - Data this morning showed UK house prices actually increased MoM bucking the downward trend we have seen recently. It's not really helping Cable this morning though as weaker equities are weighing on Sterling. More about overall risk sentiment for Cable now. The 200day MA at 1.2435 remains key resistance, support 1.2270.

CAD - USDCAD went from 1.3899 to 1.3629 in a hurry and now we're seeing a pretty big bounce from yesterday's lows. At the end of the day, stocks are pretty flat over the last twenty four hours (yesterday's S&P performance + today's futures) and the US 10 year yield is little changed from Friday's close (+3bps). Given that backdrop the move higher in Funds seems a little bit overdone and I think you can use this bounce to sell into. No matter what any other Fed member says, Powell has made it clear the bar to another hike has been raised pretty high and I don't think we see four straight months of equity market losses. Look for a further bounce in stocks this month which should help the Canadian Dollar.

Good luck.

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