Thursday March 3rd, 2022

The US$ extends gains, oil continues to rally, equity markets weaken, while US yields are mixed as risk sentiment sours. The US$ holds near 2-year highs, Aluminum hits record highs, while oil, coal, palm oil and wheat hit decade plus highs as the Ukraine war & Russian sanctions disrupt raw material flows. Ukraine’s first major city falls, claims that Russian/Ukraine negotiators could meet today while the UN reports 1 million refugees from the crisis. Intraday Fed Chair Powell testifies for a 2nd day, yesterday Powell noted ‘highly uncertain’ Ukraine impact but says rate hikes are still coming in 2022 stating a March rate hike of 25bps. A flurry of US economic data releases including US ISM Services PMI and BoC Governor Speech which could also provide some direction to currency markets. In other news. The Biden administration is requests US$32.5bn in Ukraine aid and covid funds as spending talks continue (Washington Post). Citibank warns it risks losing US$4bn from Russian Exposure. Turkish inflation pushes past 54% as food and energy prices soar. In currency markets. Russian RUB falls 20% today testing 118 vs US$ down 57.8% YTD. JPY remains under pressure, commodity currencies AUD, NZD & CAD hold firm, while EUR tests 2-year lows vs US$. CNY is flat while Asian currencies are down 0.25% on average vs US$. Trading currencies are mixed with JPY down 0.2%, MXN & NOK falls 0.5% while NZD is flat, AUD & CHF are up 0.1%, and ZAR firms 0.25% vs US$.

Oil prices spiked to multi-year highs as OPEC+ maintains its 400k bpd output in March and US sanctions target the Russian oil refining sector. C$ holds near its 5-week highs as it finds support from the BoC ¼% rate hike and on commodity prices which are testing decade highs as Russian sanctions impact global supplies. The C$ remains vulnerable to ongoing market uncertainties, but we feel the loonie has the potential of further short-term strengthening. Support shifts to 1.2550, while resistance resets to 1.2680 (minor) if breached look for 1.2750.

Euro continues under pressure hitting multi-year lows and is vulnerable to further weakness. The Euro is caught in a combination of interest rate divergence between the ECB stance on static rates in 2022 vs other major central banks that anticipate multiple rate hikes in 2022. Domestically increasing energy costs, the knock-on impact of Russian sanctions to the EU economy and the prospect of rising refugee levels from the ongoing Russian/Ukraine conflict. MTD Euro is down 1.6% vs C$, down 0.9% vs GBP, down 1.2% vs US$ and down 0.9% vs CHF. Support holds at 1.1080 (minor) with 1.1000 key, while resistance lowers to 1.1140.

EURGBP continues under pressure hitting its lowest level since 2016 on interest divergence, surging energy prices and worries over the EU economic outlook with an ongoing Ukraine crisis. Support lowers to .8237 (June2016) (1.2140) while resistance remains at .8360 (1.1962)

GBP struggles to hold 1.34 as risk-off sentiment rallies the US$. Increasing Russian advancements within the Ukraine, the 2nd day of Fed Chairs testimony and ongoing advertise risk sentiment continues to keep the pound on the back-foot vs the safe-haven US$. Intraday US data releases and Ukraine updates will drive the pound’s direction today. Support resets to 1.3300, while Resistance holds at 1.3425.