The FX Trader: A gentle USD consolidation. CAD leading the pack.

The latest

USD rebounded slightly on latest oil spike. The week is off to a rocky start for risk sentiment and the US dollar rallied briefly after the latest headlines from the war in Iran spiked crude oil prices and general uncertainty once again on the status of shipping traffic through the Hormuz Strait. Iran, or at least some Iranian sources, claim that the strait will remain “closed” even as the US fired on a disabled an Iranian cargo vessel. It is also unknown whether an Iranian delegation will even show up at the peace talks scheduled to take place this week in Islamabad, Pakistan. And yet, the amplitude of the USD rebound was modest, keeping the bearish USD case well intact, outside of USDJPY, which just doesn’t seem to want to fire to the downside. That pair has been locked up in the tight range centered around 159.00 for over five weeks now.

CAD goldilocks? (Note: this paragraph written just before Canada reports its March CPI data). The strongest G10 currency of the last five trading days is CAD, which still leaves it far from trending higher across the board. Still, it has shown a notable divergence from the US dollar, which it often weakly tracks in the crosses (take AUDUSD and AUDCAD, with an r2 of the last 1000 trading days of 0.46 and for the last 200 trading days of 0.92 (!). It is far too early to discuss an independent path for CAD, but one could argue that it is insulated from global energy disruptions, has vastly increased its oil export capacity via sea since late 2024 and is interested in building more export capacity. At the same time, the country might enjoy the benefits of any US building and reindustrialization and supply chain friendshoring boom via its huge trade exposures with its southern neighbor. And while the latest Canadian data is at the lower end of the range relative to expectations, according to Citigroup economic surprise index, it would suggest that little hope is priced in for the currency, keeping the bar low for upside surprises.

Strong scandies. Despite the risk-off tone in Europe this morning, we have both SEK and NOK on the rise versus the single currency, with EURSEK eyeing the 10.75 range low of the last month, while EURNOK is testing below 11.00 again. The spike low in EURNOK of 10.935 from mid-March is the lowest level for that pair since early 2023 – so plenty of room for further NOK strength, perhaps into 10.00 eventually assuming.

Incoming data on Tuesday (all times GMT)

• Monday 2245 (Tuesday in Asia)- New Zealand Q1 Inflation data: a key data point for the RBNZ rate trajectory, which has been drastically repriced since the October low in yields. The late May meeting is at 5-6 bps of hiking priced in, while the July meeting is at +19 bps. This data points could impact the pricing significantly.

• Tuesday 0600 - the UK’s latest jobless claims, employment and payrolls data, possibly giving sterling a chance to make a statement, something it has very much not been doing lately as EURGBP remains bottled up in a tight range below 0.8750.

• Tuesday 1230 – US Mar. Retail Sales. Not traditionally a market mover, but can be in the event of a large surprise – and March should be interesting for the degree of the surprise, given the impact of the Iran War – even if the market likely willing to discount a lot of variance.

Chart focus: USDCAD ready to power lower?
USDCAD is breaking down now after punching lower through the former range high near 1.3750. There is still a chunk of range to work with to the huge 1.3500 area. But looking at a longer-term chart, it’s hard to see why the pair can’t get back to 1.3000 eventually in a weak US dollar environment. As noted above, economic surprises relative to expectations have been about as bad as they get, and CAD might enjoy both somewhat higher and considerably lower oil prices (as other nations diversify supply chains), if not extremes in oil prices in either direction.