The Canadian dollar is probing strong resistance in early trading due to improved risk sentiment, steady oil prices, broad U.S. dollar weakness, and position adjusting ahead of today’s Bank of Canada (BoC) monetary policy meeting.
Global risk sentiment is positive after various officials, including Presidential Chief Medical Advisor Anthony Fauci, downplayed the severity of the Omicron variant. Dr. Fauci acknowledged that Omicron is “clearly highly transmittable” but added “it almost certainly is not more severe than Delta.”
That was enough for oil traders who lifted WTI prices from $67.40/barrel on Monday to $72.76/b overnight. Prices are consolidating those gains and WTI is trading at $72.05 in New York. Analysts suggest that a large part of the end of November early December WTI weakness was flow driven as hedge funds sold 131 million barrels in the last week of November.
The Canadian dollar rally coincided with the rebound in crude prices with USD/CAD falling from $1.2850 on Monday to $1.2618 today.
The Canadian dollar is also rising in anticipation of an upbeat BoC monetary policy statement today. The BoC is universally expected to leave interest rates unchanged. However, analysts suggest the message will be upbeat. They expect the usual caveats about uncertainty to their outlook from the coronavirus, but it will also acknowledge the strength of domestic employment and elevated inflation levels.
The prospect that the BoC raises interest rates in March or April, ahead of the U.S. Federal Reserve, suggests further gains for the Canadian dollar.
GBP/USD took a turn for the worse in early New York trading. GBP/USD dropped through support at $1.3205 and dropped to $1.3163 following a news report that U.K. Prime Minister Boris Johnson plans to impose new coronavirus restrictions. Policymakers were spooked with the discovery of the Omicron variant and are discussing implementing Plan B which would mean vaccine passports and a return to the work from home order. Prices have since recovered back to 1.3200.
EUR/USD rallied from $1.1268 to $1.1299 before slipping to $1.1290 in New York. The mix of improved risk sentiment and broad U.S. dollar weakness is fueling a EURUSD short squeeze. A move above 1.1300 targets 1.1350.
AUD/USD and NZD/USD rallied with the broad U.S. dollar selloff. AUD/USD got an added boost on speculation the Reserve Bank of Australia will raise rates sooner than expected, even though that date is well into 2023.
The U.S. economic calendar is light with the JOLTS job opening report the main focus.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians