Today's FX Comment

October 30, 2024 

Good morning and happy hump day. I went to "math curriculum" night at my daughter's school yesterday. Things have definitely changed since my grade nine days. Math work done in groups, one hour final exams, final exam only worth 20% of you grade. I think I would have enjoyed math class a lot more today then back in my high school days...

It is mostly a sea of red out there for equities as we start the session. Overnight in Asia the Nikkei managed to trade higher (I guess political deadlock in Japan isn't a concern for Japanese stocks) while most other indices were weaker. The Hang Seng led the way lower no doubt weighed down by thoughts of a potential Trump Presidency and more of those beautiful tariffs in the pipeline. Stocks in mainland China were under pressure as well, remember China's NPC Committee is scheduled to meet November 4-8 and there are plenty of reports floating around about increased fiscal stimulus should Trump win the election.

Sentiment has taken a turn for the worse in Europe with losses picking up speed. Maybe a bit of nervousness ahead of today's UK budget and of course maybe some defensive positioning ahead of next week's US election with (once again) thoughts of tariffs lingering in the background. There is some good news though with the European economy showing signs of life. We saw GDP beats out of France, Germany and the EU as a whole this morning. Admittedly the bar was not set too high but nonetheless, growth is ticking higher and more rate cuts should help. Now if the US and EU can only avoid a protracted trade war...

On a cheerier note, futures point to a slightly higher open for North American equities with Alphabet's beat after the bell last night helping to give the broader market a tiny lift. There is plenty of data to chew on this morning with ADP and US GDP on tap and of course we have Microsoft and Meta after the bell. I know Trump trades are still at the forefront but for now I think it remains a soft landing in the US, still a decent backdrop for equities.

FX thoughts:

JPY - We know the BOJ will leave rates unchanged tonight and given the current state of Japanese politics and the uncertainty around government/fiscal policy maybe its a quieter than normal central bank meeting. That being said, inflation and wage growth still point to a BOJ rate hike down the road. I also think Japanese officials will keep their eye on the currency as moves might be getting a bit too one-sided. Support 150.80, resistance 153.90 and 154.55.

AUD - Australian CPI data was released last night and as expected, the headline print fell back into the RBA's target range, largely due to the impact from temporary government rebates. Core data remains well above target though (3.5%) with upward revisions to the prior numbers. Hard to see the RBA cutting rates anytime soon. I think you take a look at AUD Call spreads with spot down here. Support .6515.

EUR - Eurozone GDP data was better than expected while regional German CPI data came in a bit hotter this morning and that has dialed back ECB rate cut pricing with the thought of a 50bp move in December fading. The data has also given the Euro a bit of a lift as maybe the Fed does end up cutting more than the ECB by year end after all. Support is decent between 1.0755-75, on top it is 1.0870.

GBP - All about market reaction to today's UK budget. Gilt yields have dropped pre-announcement with the market expecting a middle of the road budget - taxes up and spending up but with a focus on infrastructure. It has already been leaked that we should expect a 6.7% increase to minimum wage and a 4% rise to the state pension. If Chancellor Reeves can convince the market that the government can plug that reported 22bln Sterling fiscal hole without being too much of a drag on the economy Sterling might just rally. Not an easy task though. Support 1.2910 and 1.2870, resistance 1.3040-50.

CAD - The most exciting thing about Canada right now is seeing how long we have to wait until we get a federal election call. We will get GDP data tomorrow be we won't get our employment numbers until next week and in between now and then it will be more about broader moves in the US Dollar. Same levels, resistance at the August 1.3946 high, initial bids between 1.3830-50. I'm not saying USDCAD can't trade higher, but be careful short Canadian Dollar positioning is starting to get stretched.

Good luck.