Details Cookies
Hong Kong S.A.R
Cookie policy

This website uses cookies to offer you a better browsing experience by enabling, optimising and analysing site operations, as well as to provide personalised ad content and allow you to connect to social media. By choosing “Accept all” you consent to the use of cookies and the related processing of personal data. Select “Manage consent” to manage your consent preferences. You can change your preferences or retract your consent at any time via the cookie policy page. Please view our cookie policy here and our privacy policy here

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

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 is not intended to and does not change or expand on this. 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 (
- Full disclaimer (

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged foreign exchange trading); Type 4 Regulated Activity (Advising on securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.