Thursday June 17th, 2021

The US$ continues its rally, oil prices hold steady, equity markets weaken while US yields are mixed after the Fed moves up its timeline for rate hikes. The Fed on Wednesday considerably raised its expectations for inflation in 2021 and brings forward the timeline to as soon as 2023 on when it will next raise interest rates. The US$ index rallies, posting its biggest single-day gain in 15 months vs a basket of major currencies after the Fed’s comments surprised markets when it released its “dot plot” where it signaled two rate hikes in 2023. In other news, eleven GOP senators back the bipartisan infrastructure framework, which gives the bill sufficient votes to pass the Senate if all Democrats give their support. The next step will for President Biden who hasn’t seen the bipartisan plan yet will review the US$1T proposal. In the currency markets, Norway’s central bank sets out its plan to start raising interest rates in September. In Asia, investors trim their long Asian currency positions after the Feds announcement which caused the CNY easing to a 3-week low, while INR & ZAR extends to a 4-week low vs US$. CNY drops 0.6%, while Asian currencies are down 0.3% on average vs US$. Trading currencies are mixed with JPY flat, while AUD & NZD drop 0.3%, MXN weakens 0.7%, NOK & ZAR tumble almost 1% vs US$. Focus shifts to US jobs data & the Philadelphia Fed manufacturing survey out today. 

Oil prices hold steady near their multi-year highs as demand remains strong, but a higher US$ & a possible lifting of Iranian sanctions could cap oil prices. C$ weakened 2.2% mtd after the Fed delivers a hawkish surprise to the markets and triggered a broad US$ rally which saw C$ test a 7-week low. Domestically the Canadian story is improving with annual inflation up 3.6%, oil prices remain at multi-year highs & BoC has already began tapering and could raise rates in 2022. As markets calm after the Feds announcement the Canadian story remains strong. Support resets to 1.2257, if breached C$ could run to 1.2160 with resistance at 1.2417 (Apr 28th, 21).

Euro tumbles to 2-month lows as US$ rallies on the FOMC statement. The Fed’s hawkish tone took the markets by surprised and saw a resurgence in US$ buying causing Euro to tumble over 150 basis points. Focus shifted to the ECB which plays down the Sept meeting signaling limited current positive data for the ECB to shift its current monetary policy. Eur economically is rebounding, but the divergence of central bank views of future rate hikes could keep Euro under pressure in the short-term Support resets to 1.1925, if breached look for 1.1860 next, while resistance resets to 1.2130.

EURGBP weakens further after the EBC indicated it will hold rates unchanged while the BoE and now the Fed have signaled further rate hikes. Support holds at .8550 (1.1695) with resistance remaining at .8665 (1.1540).

GBP falls below 1.4 on a strengthening US$, rising variant cases and ongoing Brexit disputes. The GBP already under pressure after stalling its reopening until July was dealt a 2nd blow as the US$ rallies on the Feds comments. Domestically the UK economy is rebounding, the BoE has signaled the need to raise rates and vaccination rates remain at the highest levels amongst the western worlds. Bias to see GBP remain strong vs its non-US$ peers. GBP vs the US$, our bias is to buy dips below 1.39. Support resets to 1.39, with minor resistance at 1.3980, if breached look for a retest of 1.4085.