FX July 14, 2022 / 09:04 am UTC

FX Daily Strategy - N America, July 14

By Adrian Schmidt

More focus likely on claims after more US curve inversion following CPI

USD looking vulnerable to evidence of real sector weakness

AUD and CAD still look good fundamental value

SEK and NOK may also have scope for recovery

More focus likely on claims after more US curve inversion following CPI

USD looking vulnerable to evidence of real sector weakness

AUD and CAD still look good fundamental value

SEK and NOK may also have scope for recovery


There’s no major US data on Thursday, although there will be interest in the claims data which is starting to show signs of a turn in recent weeks. More evidence on this score would challenge the narrative of resilient employment told by the employment report last week, and while it wouldn’t change market expectations for a 75bp Fed move in July, it might limit speculation of a 100bp move to follow the BoC. The market is now pricing around 82bp for the Fed this month, or around a 30% chance of a 100bp move, and after the high inflation numbers on Wednesday and the surprise 100bps from the BoC, it’s hard to rule out a larger move. This being the case, it’s also hard to oppose the strong USD, but the break of parity in EUR/USD after the CPI didn’t last long with bond yields quickly reversing the rise at the long end and the curve inverting further. This suggests that the USD may now be vulnerable to evidence of economic weakness, so there may be more attention of the claims data than usual. US PPI is also released, but this looks unlikely to change the picture after the CPI data.


The Australian employment data was first on the calendar, and was expected to produce another solid 30k rise in June, but exceeded expectations with an 88.4k rise. It’s hard to be negative on the AUD from a fundamental perspective, given the strong improvement in the Australian trade balance due to the terms of trade improvement, a solid economy which is expected to continue to show solid growth and somewhat less rampant inflation than elsewhere, plus yield spreads that are still attractive. However, the AUD still struggles when risk sentiment is weak, so while we find it hard to be bearish, we wouldn’t expect any major gains until there is a more positive picture for the global economy and equity markets.

The 100bp rate hike from the BoC, and the promise of more to come underpinned the CAD on Wednesday, sending it back below 1.30 after trading up to 1.3060 after the US CPI data. The initial decline was quite modest but spreads hadn’t initially moved a huge amount against the USD after the upside US CPI surprise, and weak equities and lower oil prices on the day were also not helpful. But as US yields came off, so the CAD made more gains, and we can now see scope for USD/CAD to fall to the middle of the range around 1.28, although like the AUD, gains will be hard as long as risk sentiment is weak. 

Swedish inflation was much higher than expected in June, rising to 8.5% y/y. but there has been no reaction in the SEK, with EUR/SEK steady at around 10.62. The data will increase the chances of more aggressive moves from the Riksbank, reflected in 2 year Swedish yields rising nearly 10bps in response, so the lack of SEK reaction doesn’t sit well with the sharper reaction in the USD to US CPI yesterday. Partly this is typical quiet summer markets in EUR/SEK, but there is generally less enthusiasm for higher yields outside the US, particularly in a risk negative environment. Even so, the SEK is looking good value here from a longer term perspective against the USD and EUR, albeit less so than the NOK, which looks attractive both due to yield spreads and the huge trade balance improvement that Norway has seen on the rise in gas prices.

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I, Adrian Schmidt, the lead analyst declare that the views expressed herein are mine and are clear, fair and not misleading at the time of publication. They have not been influenced by any relationship, either a personal relationship of mine or a relationship of the firm, to any entity described or referred to herein nor to any client of Continuum Economics nor has any inducement been received in relation to those views. I further declare that in the preparation and publication of this report I have at all times followed all relevant Continuum Economics compliance protocols including those reasonably seeking to prevent the receipt or misuse of material non-public information.