The Canadian dollar rallied yesterday and consolidated those gains overnight. FX traders focused on a surge in U.S. 10-year yields that climbed from 1.518% to 1.605%.
That move soured risk sentiment, and the U.S. dollar clawed back some of yesterday’s losses.
The Canadian dollar continues to be supported by the rebound in crude oil prices this year. West Texas Intermediate has risen over 28% since the start of the year, and many analysts expect prices to continue to rise. The gains are driven by ongoing uniliateral production cuts by the Organization of the Petroleum Exporting Countries, Russia, and Saudi Arabia. Those cuts, combined with expectations for a robust global post-pandemic economic recovery, will shift the supply/demand equation favouring producers.
The Canadian dollar is getting an added boost from U.S. President Biden’s $1.9 trillion COVID-19 Relief bill, which he signed yesterday. The expected boost to the US economy is beneficial to Canada due to the significant trade between the countries.
Statistics Canada releases the monthly Labour Survey report Friday. Canada is expected to have added 75,000 jobs in February, a vast improvement over the 212,000 jobs that disappeared in January. However, the impact of the data on USDCAD trading will be negligible. The Bank of Canada maintains that domestic interest rates will remain unchanged until mid-2023, so today’s report is a non-event.
COIVD-19 concerns are impacting sentiment in Europe. The German Health Minister said, “we are at the start of the third COVID-19 wave.” Italy is contemplating locking down some regions, including Milan. Even worse, AstraZeneca is reportedly shipping less than half of expected vaccines between April and June.
EUR/USD dropped steadily overnight, falling from $.1977 to $1.1911 in New York, as the surge in U.S. 10-year yields soured risk sentiment. Yesterday, the European Central Bank said it would increase the pace of its Pandemic Emergency Purchasing Program. (PEPP). The intraday EURUSD technicals are bearish below $1.1980, looking for a test of support at $1.1830.
GBP/USD fell from $1.4004 in Asia to $1.3886 in New York due to soft January Gross Domestic Product data and pre-weekend profit-taking.
January GDP fell 2.9% m/m better than forecast but worse than Decembers 1.2% m/m increase. Manufacturing production Industrial production reports were also soft. A 40% drop in exports to the European Union in January also put Brexit in a negative light. However, the uptrend line from November is intact while prices are above $1.3830.
USD/JPY traded with a bullish bias in a 108.51-109.16 range. Higher Treasury yields underpinned prices.
AUD/USD and NZD/USD tracked broad U.S. dollar sentiment and were on the defensive overnight.
The U.S. Michigan Consumer Sentiment Index is expected to rise to 78.5 from 76.8 previously.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians