The Canadian dollar was on the defensive in Asia, in part because of the mixed close on Wall Street. The Dow Jones Industrial Average closed with record gains but the NASDAQ and S&P 500 lost ground. China’s Shanghai Shenzhen CSI 300 index got slammed, dropping 2.15%, on top of the 3.2% loss on Monday. However, the other major Asia indexes did not suffer the same fate.
Risk sentiment turned positive at the European open as U.S. Treasury yields started to slide. The 10-year Treasury yield dropped to 1.52% from 1.60%, with the move being attributed to position adjustment ahead of a sizeable Treasury auction that begins today.
The plunge in yields fueled Canadian dollar demand. USD/CAD fell to $1.2593 from $1.2684 as prices tracked broad U.S. dollar sentiment against the majors. The selloff saw added pressure from steady to firm oil prices. West Texas Intermediate has a bullish bias and continues to trade above $65.00/barrel. Traders are unconcerned ahead of Wednesday’s Bank of Canada monetary policy meeting. There will not be a press conference that suggests policy and guidance will be unchanged.
The Organization for Economic Development and Cooperation (OECD) contributed to the positive risk tone in FX markets. The world body boosted its 2021 global Gross Domestic Product growth forecast to 5.6% from 4.2% in December.
The interim statement said: “Activity in many sectors has picked up and partially adapted to pandemic restrictions. Vaccine rollout, although uneven, is gaining momentum, and government stimulus, particularly in the United States, is likely to provide a major boost to economic activity. But prospects for sustainable growth vary widely between countries and sectors. Faster and more effective vaccination deployment across the world is critical. Prospects have improved over recent months, with signs of a rebound in goods trade and industrial production becoming clear by the end of 2020.”
The OECD predicts Canada’s 2021 GDP growth will be 4.4%
EUR/USD bounced from $1.1837 to $1.1915 on the back of the drop in Treasury yields. Yesterday, U.S. Treasury Secretary Janet Yellen said that the stimulus plan would drive a very strong recovery. She said the Fed had tools to deal with rising inflation, so she wasn’t concerned.
The U.S. dollar opened in New York, broadly lower from yesterday’s close. FX direction will be dictated by bond traders as there are no Canadian or U.S. economic reports due today