Wednesday April 6th, 2022

The US$ steadies, oil prices are higher, equity markets are down, while US yields firm as the west prepares new Russian sanctions. The EU announced it will impose a ban on Russian coal imports and the US is expected to unveil additional sanctions which could include a ban on all new investments in Russia. Fed V.Chair Brainard on Tuesday said that the Fed is prepared to take ‘stronger action’, the balance sheet runoff will be rapid, & reducing inflation pressures is ‘paramount’. The hawkish Fed comments, higher US yields and upbeat data releases fueled the US$ index advance towards 2-year highs. Intraday markets will focus on the FOMC minutes from the March policy meeting, CAD Ivey PMI data and Ukraine war updates for direction. In other news, In the face of fresh sanctions the Kremlin said it wants to keep diplomatic ties with the west open. Foreign banks refuse Russian coupon payments of US$ 649.2m Eurobond payments. In China Caixin services PMI tumbled to 42 in March from 50.2 in February highlighting the impact of the Shanghai covid lockdowns. The Asian Development Bank said the Ukraine war is expected to derail economic recovery in developing Asian countries which are still reeling from the covid pandemic. The currency markets. AUD eases off 10-month highs, CNY, EUR & GBP bounce off fresh lows as the US$ consolidates ahead of the FOMC minutes. CNY up 0.1% while Asian currencies are down 0.1% on average vs US$. Trading currencies continue under pressure with ZAR & NZD flat, while AUD & NOK are down 0.2%, JPY & MXN weakens 0.35% and CHF falls 0.4% vs US$.

Oil prices advance as new Russian sanctions raise supply concerns outweighed weaker demand following the buildup in US stockpiles and Shanghai covid lockdowns. C$ weakened from its 5-month highs of 1.2404 on the back of strengthening US$ on stronger yields and hawkish fed comments. Focus will be on the FOMC minutes and CAD Ivey PMI releases will help provide intraday direction. Our bias remains to sell US$ on pull backs with expectations of continuing BoC rate hikes and high commodity & energy prices. Support resets to 1.2450 if breaks look for 1.2383 (Nov 2021), while resistance holds at 1.2553.

Euro bounces off weekly lows heading into the FOMC minutes. Euro rebounds from the intraday lows of 1.0873 as risk-off sentiment grows with the release of fresh sanctions on Russia will increase EU energy costs. Euro is expected to remain on the back-foot in coming months as energy prices remain high, inflation continues soar, the ECB is expected to keep rates on hold, while investors are expected to favor the US$ for its higher interest rates. Intraday focus will be on the FOMC minutes and Ukraine war updates. Support resets to 1.0870 while resistance lowers to 1.0965.

EURGBP is flat as fresh Russian sanctions impacted both currencies equally and investors remain sidelined ahead of the FOMC minutes today. Support holds at .8300 (1.2048) while resistance remains at .8425 (1.1869).

GBP weakened to near 1-month lows on hawkish Fed comments. The hawkish fed comments contrasts with the BoE Deputy Governor saying that he did not believe expectations of persistently high inflation were becoming embedded in companies and consumers thinking. The pound recovered from 1.3042 lows but is struggling to break back through 1.3100 as markets focus on the FOMC minutes. In the short term the pound remains vulnerable to further weakness. Support resets to 1.3042 while Resistance holds at 1.3155.