FX Update: CAD adds to JPY wobbles against USD FX Update: CAD adds to JPY wobbles against USD FX Update: CAD adds to JPY wobbles against USD

FX Update: CAD adds to JPY wobbles against USD

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  The US dollar has notched higher in the wake of the US President Trump move against Chinese social media companies and a snag in the everything-must-go-up trade. US Congress was unable to reach agreement on new stimulus measures in the latest round of negotiations, but Trump seems ready to move unilaterally with executive action. Some focus on EM as we head into the weekend, the ruble in particular.

A few thoughts ahead of the weekend and early next week, with my next update not until next Thursday.

USD not adding to the melt-up narrative. Broader measures of the US dollar rally largely topped out a week ago, and the momentum dropped before then, meaning that the “USD liquidity is driving everything” argument is getting more than a bit threadbare. Before, I have mentioned the US Treasury’s stockpiling of over $1.7 trillion, a move that on balance reduces liquidity. That and the fact that the Fed balance sheet has not grown for months now are two factors eroding the USD liquidity narrative, with all arguments in that direction pointing to expectations for more rather than the current state of affairs. Unless the Treasury is set to flood the market with new stimulus and/or the Fed is set to up its pace of purchases, it is tough to argue for fundamental support for an imminent extension of this USD move lower.

Some TRY transmission into EM nerves and an interesting weekend ahead for RUB – the USDTRY move pulled higher still today after about a 3% rally yesterday, though was tamed a bit as of this writing. We have highlighted that European bank exposure to Turkey is non-trivial and could even hurt the euro at the margin after its aggressive runup versus the USD. Turkey seems to be turning the corner on policy to address the drivers of TRY weakness, but this is early days. Select other EM’s have suffered a rough ride recently, among these ZAR and RUB, both of which have traded near recent extreme lows versus the Euro, with the weak USD hiding to a degree just how weak they have been. Foreigners are dropping South African debt from their portfolios, with July data showing a drop to 30.1% ownership of sovereign debt by foreigners, versus over 37% in January. Moving over to the Russian ruble (RUB): this weekend sees an historic Belarus election, where any popular perceptions that the results have been rigged could see the record protests emboldened further to stay on the streets. Any Russian involvement in the situation (Belarus’ embattled leader Lukashenko traditionally very aligned with Moscow, but has pushed back against Putin’s recent overtures on closer union) could bring echoes of Ukraine’s “colour revolution” and the spectre of fresh sanctions from the US and Europe.

The negative rates story is driving everything – this was one of our main themes in today’s Saxo Market Call podcast, where we point out that market pricing of forward US inflation points to market pricing in aggressively negative real rates (inflation above so). This doesn’t have to be a US-specific story, of course, meaning that as long as other countries are moving in the same direction as the US on budget imbalances and stimulus and perceived inflationary risks, this doesn’t have to be a USD story – but it is a hard assets story (see many commodities prices, especially iron ore and gold and silver of late – if not yet the very important energy component!) and a solid, profitable company story (US tech and internet giants). On that note, AUD seems particularly attuned to this story and therefore also vulnerable if there is a significant consolidation in commodities in particular and in the narrative in general.

US economic data – who cares?  It is tough to argue that the market will pull much from data surprises in either direction. If the economy is running hotter than expected, it enhances the negative real rates story noted above as the Fed, for example, has declared it would like to see things run hot and for employment to normalize before considering a rate hike.  Weak data, on the other hand, means the market will anticipate that ever greater quantities of fiscal stimulus will be forthcoming until morale improves… The key risk to the narrative would be either a) fiscal stimulus surprisingly fails to match up to the scale of the problem and the growth outlook deteriorates badly, or b) either growth or the fiscal stimulus or both sees longer yields rising more determinedly, with the Fed tardy to send out the alarm on imminent yield-curve-control. Finally there is c) the case in which inflation arrives even as the economy stays weak – a nightmare stagflation scenario that is positive for almost nothing save gold.

USDCAD has become the latest USD pair to tease that it is becoming uncomfortable with the latest wave of USD weakness, as it consolidates back into and even above the 1.3300-50 zone that was so pivotal on the way down. Locally, a more full-bore reversal back to 1.3450 is needed to suggest a reversal of more conviction, but we’re watching this pair into the close of the week, especially as oil trades in technical limbo as it finds itself back below the range highs that were briefly taken out this week.


Source: Saxo Group

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Schweiz) AG
The Circle 38

Contact Saxo

Select region


All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) Ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law. 

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.