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CAD Replaces JPY as Poorest Performer in G10

FOREX
  • CAD has taken the place of the JPY as the session's poorest performer, slipping ahead of the Bank of Canada rate decision due on Wednesday. The Bank are expected to raise rates by a further 50bps to 4.25% at tomorrow's decision, but markets are instead focusing on the weaker oil price and more negative risk backdrop, as US futures point to no real relief rally for equities after yesterday's sharp decline.
  • The corrective rally in USD/JPY extended overnight, putting the pair at 137.42 before fading slightly into NY hours. Any extension higher would open 139.68, the 20-day EMA. This average is seen as the first key short-term resistance. On the downside, the bear trigger is 133.63, the Dec 2 low.
  • Little option influence at current JPY prices for today's cut, with few nearby expiries to drag spot in either direction - nonetheless, the pipeline for this week is tilted higher, with between $8 - 9bln notional due to roll off between Y140.00 and Y143.00 into Friday's 10am NY cut that may be exerting an influence.
  • Risk reversals look to have bottomed out, supporting a corrective bump higher in spot for now, with the 1m contract rising well above the intervention-inspired lows this year in September and October.
  • AUD outperforms following the RBA rate decision, at which the bank raised rates alongside expectations but also signaled further tightening is to come in 2023.
  • There are no central bank speakers due Tuesday, with only tier 2 data on the docket, as US and Canadian trade balance data cross ahead of the Wall Street opening bell.
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