Citi

After a wobbly trading session on Wednesday, market participants may prefer to wait before engaging again. Despite broader volatility in equities, commodities and even cryptocurrencies, we saw risk appetite in the FX space stay intact yesterday. However, the FOMC minutes were perceived as somewhat hawkish, giving USD a leg up. A number of participants suggested it might be appropriate to start discussing their tapering plans in upcoming meetings. We caveat that the minutes predate both NFP and CPI prints, and the overall FOMC remains steadfast in its dovishness.

The overnight Asia session saw limited fading of the moves, though there is a sense that broader risk assets are trying to stabilize. Note that oil prices have come off the lows, while US equity futures trade flat. EURUSD remains under 1.22 while USDCNH has bounced up to the 6.44 handle as a consequence. While the headline employment number seems disappointing for AUD, the details revealed that there is nothing to worry about. ECB speak is likely to present limited event risk for EUR, while it is a similar case for ZAR and LKR central bankers. We continue to assess broader price action.

RBC Capital Markets

Day ahead: The SARB meets (see ZAR), the BoC releases its FSR (see CAD), Philly Fed and jobless claims are due in the US with AU retail sales tonight. Central bank speakers include the ECB’s Lane on Europe and the global economy, Riksbank’s Skingsley on monetary policy, Fed’s Kaplan in a moderated Q&A and BoC Gov Macklem with the post-FSR press conference.

CAD: The BoC’s FSR provides an annual look at risks to the Canadian financial system. Market focus is usually heavily on comments regarding housing and household debt. The BoC has noted concerns on the housing front given record levels of activity and accelerating benchmark prices. Butthey have also made it clear that monetary policy is set for the entire economy, favouring macroprudential policies to moderate risks. Household debt has shifted further to mortgages as pandemic savings have reduced consumer credit levels. Risks from high loan-to-income mortgages especially are likely to be highlighted. Otherwise, the BoC should draw attention to the potential for higher term yields to tighten financial conditions and cybersecurity risks. USD/CAD has support at 1.2090 and 1.2062, with resistance at 1.2137 and 1.2166.

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