The Canadian dollar is consolidating Friday’s gains in a cautious FX market.
USD/CAD collapsed from $1.2570 on Friday to $1.2465 after a stellar Canadian employment report. Canada gained 259,200 jobs in February, far surpassing the forecast for a 75,000-job increase.
The Canadian dollar is benefitting from the $1.9-trillion U.S. stimulus package as well. The package is expected to fuel a spike in U.S. economic growth, and Canada, as America’s largest trading partner, will benefit by default.
The Canadian dollar gains are being underpinned by firm oil prices. West Texas Intermediate, the North American benchmark price, is trading a $65.64 U.S./barrel. Many analysts expect prices to continue to rise to at least $70.00/b as the post-pandemic global economy rebound leads to higher crude demand.
FX markets will trade cautiously ahead of Wednesday’s Federal Open Market Committee meeting.
Traders are eager to see an updated “dot-plot” forecast of interest rate projections in light of the rise in Treasury yields.
European traders are concerned about the “Third Wave” COVID-19 outbreak sweeping across the Eurozone. Germany, Italy, France, and Poland are experiencing a surge in new infections. Those countries are getting ready to impose new restrictions. Analysts expect that an European Union post-coronavirus economic rebound will greatly lag economic growth in the U.K. and U.S., in part because officials bungled the acquisition and rollout of vaccines. EUR/USD was on the defensive overnight, falling from $1.1967 to $1.1919.
GBPUSD traded cautiously in a $1.3897-$1.3948 range ahead of the Bank of England (BoE) monetary policy meeting Thursday. BoE Governor Andrew Bailey sounded optimistic when he told the BBC, “The economy will actually get back at the end of this year to where it was at the end of 2019.”
Despite that outlook, he did say that it was appropriate to have “negative interest rates” in the “tool-box.”
USD/JPY rallied as 10-year Treasury yields revisited 1.618%. The Bank of Japan monetary policy meeting is Friday. The central bank is expected to announce the results of its monetary policy review.
AUD/USD and NZD/USD were choppy. Both currency pairs were supported by news China Retail Sales rose 33.8% y/y in February. However, those results are distorted by base effects of the COVID-19 virus, which limited gains.
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Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians