The Canadian dollar extended yesterday’s gains in a “risk-on” overnight session. Congress finally passed U.S. President Biden’s $1.9-trillion stimulus package. The result was never really in doubt as the Democrats controlled the House and Senate.
U.S.D. 10-year Treasury yields dropped from 1.57% yesterday to 1.47% overnight. The slide occurred after the U.S. 10-year note auction was well received. The drop in rates soothed jittery inflation nerves and the US dollar retreated.
The Bank of Canada left interest rates, monetary policy and the statement headline unchanged yesterday. The move was expected. The bank noted that: “G(ross) D(omestic) P(roduct) grew 9.6% in the final quarter of 2020, led by strong inventory accumulation. GDP growth in the first quarter of 2021 is now expected to be positive, rather than the contraction forecast in January. Consumers and businesses are adapting to containment measures, and housing market activity has been much stronger than expected. Improving foreign demand and higher commodity prices have also brightened the prospects for exports and business investment.”
But the bank wasn’t happy. It countered the positive growth outlook by saying “Despite the stronger near-term outlook, there is still considerable economic slack and a great deal of uncertainty about the evolution of the virus and the path of economic growth. The labour market is a long way from recovery, with employment still well below pre-COVID levels.”
The central bank is determined to stick to its view that inflation increases will be transitory. It said “C(onsume) P(rice) I(ndex) inflation is near the bottom of the 1-3 percent target band but is likely to move temporarily to around the top of the band in the next few months. The expected rise in CPI inflation reflects base-year effects from deep price declines in some goods and services at the outset of the crisis a year ago.”
Analysts are looking for clarification today when Deputy Governor Lawrence Schembri delivers a speech titled “Savings in the time of COVID-19, and the outlook for household spending,” at lunch.
EUR/USD traded in a $1.1917 to $1.1968, range overnight with traders awaiting today’s European Central Bank monetary policy meeting results.
GBP/USD traded quietly, with a bullish bias in a $1.3920 to $1.3962 range.
A speech by Biden and U.S. Jobless Claims data are the focus today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians