USD/CAD – Canadian Dollar Rangebound

The Canadian dollar is rangebound, albeit with a modest firming bias.

USD/CAD rallied to $1.2744 yesterday before running out of steam and reversing course. Surging crude oil prices helped to limit the gains.

West Texas Intermediate, the North American benchmark price, climbed to $62.23/barrel overnight after a massive U.S. winter storm knocked as much as 40% of the daily crude production off-line. Oil price gains continue to be propelled by existing production cuts by the Organization of the Petroleum Exporting Countries and Saudi Arabia and hope that a vaccine-fueled global economic rebound lifts oil demand.

The tug of war between the Fed and bond traders is ongoing. The Federal Open Market Committee minutes from the January 27 meeting, released yesterday, reiterated the Fed’s position that inflation increases would be temporary and that U.S. employment is far weaker than the data suggests. That shouldn’t be a surprise to anyone listening to the numerous Fed policymakers since the meeting.

However, bond traders note that the Fed also expects the medium-term outlook had improved and that inflation risks were becoming more balanced.

U.S. treasury yields remain elevated at 1.292% in New York trading, but they are below the overnight peak of 1.316%.

Concerns that rising inflation will force the Fed to increase interest rates sooner than expected underpin the U.S. dollar. Simultaneously, the recent slate of robust U.S. economic data is stoking hopes for a strong, global economic recovery, limiting U.S. dollar gains.

China returned from week-long Lunar New Year holiday. The Shanghai Shenzhen CSI 300 index gapped higher at the open, but then fell steadily throughout the session to close with a small loss. The other major Asia equity indexes closed lower except for Australia’s ASX 200, which was flat. European equity indexes are modestly lower except for the German Dax, which is modestly higher. Wall Street appears poised to open in negative territory.

EUR/USD is attempting to claw back losses since dropping from $1.2167 Tuesday to $1.2023 yesterday. Prices are probing resistance in the $1.2070 area. EUR/USD gains are hampered by fears that the European Union economic recovery will sharply lag that of other G-10 nations due to the EU’s mismanagement of COVID-19 vaccines.

Topside resistance is exacerbated by European Central Bank policymakers expressing concern about the level of the currency. The ECB minutes of the January 21 policy meeting reiterated that economic growth risks were to the downside.

Today’s U.S. data includes weekly Jobless claims, housing starts, building permits and Philadelphia Fed Manufacturing Survey data.

Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians

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