Tuesday December 6th, 2022

The US$ steadies, oil prices fall, equity markets are down, while US yields are mixed on the resilient US economy. The strong US economy and persistent inflation is offsetting optimism about a reopening in China, with economists suggesting the Fed will need to push interest rates to a higher peak than previously expected. In China, Beijing drops covid testing burden, the latest in a mix of easing steps nationwide after last month’s historic protests. Today’s US economic docket is quite light with just US Goods & Services Trade Balances, CAD International Merchandise Trade & Ivey Purchasing Manager Index will help provide intraday direction. In other news. China to US container volume was down 21% between August and November 2022. Oil tanker jam form off Turkey after start of Russian oil cap (FT). Russia accuses Kyiv of drone attack on air bases deep in its territory. German orders rise pointing to a milder-than-expected recession. UK construction growth slows as economy falters; PMI, while UK’s grocery inflation falls for the first time in 21 months. In Currency markets. Korea, Indonesia, China sell-off aggressively vs US$, while India retested historical lows vs US$ as Russian oil sanctions and the prospect of higher US rates put pressure on the currencies. AUD finds supports its central bank keeps to higher interest rate stance. US$ index steadies after Monday’s rally vs a basket of major currencies. CNY & Asian currencies are down 0.5% on average vs US$. Trading currencies are mixed with NOK down 0.15%, while JPY, CHF, MXN & NZD are up 0.15%, AUD & SEK firm 0.3%, and ZAR strengthens 0.5% vs US$.

Oil prices remain volatile after Russian crude sanctions kick in alongside increasing optimism of a China reopening as covid restrictions ease. C$ remains under selling pressure down 1.6% in December vs US$ and continues to underperform its G10 peers. Weakness in oil prices and the prospect of widening interest rate differentials between the Fed & BoC continues to keep pressure on the loonie. Today Ivey Purchasing Managers Index and International Merchandise Trade will help provide some direction to markets ahead of the BoC rate decision tomorrow. Support resets to 1.3570 while resistance rises to 1.3680.

EURCAD extends gains as BoC looks set to pivot rate hikes while the ECB sees more room to raise rates. Support holds at 1.4080 while resistance remains at 1.4200.

Euro stalls near 1.0500 amid better-than-expected German data & a choppy US$. German industrial orders recovered more than expected in Oct as strong foreign demand added to signs that an expected recession in the EU largest economy may be milder than initially expected. ECB chief economist Lane said the central bank expects more rate hikes but inflation close to peak. Focus remains on US$, the Fed and the prospect of higher US rates for longer. Support holds at 1.0470 while resistance remains at 1.0600.

GBPEUR continues to ease on a more hawkish ECB vs a slowing UK economy. Support lowers to 1.1550 (.8658) while resistance remains at 1.1700 (.8547).

GBP fades below 1.2200 amid slowing economy and a renewed hawkish Fed outlook. The pound comes under increased pressure as the UK economy slows, while strong US economic data keeps pressure on the Fed to continue keep a hawkish stance on interest rates. UK construction industry almost stalls in November as high borrowing costs & gloomy economic outlook slowed building work. Britain’s grocery inflation edged lower in November its first decline in nearly two years, providing a little relief for consumers ahead of Christmas. Support lowers to 1.2130, while resistance resets to 1.2240.