– CAD poised to be worst performing G-10 currency vs US dollar this week
– EURUSD suffering from dovish ECB and weak German data
– Negative risk sentiment underpins US dollar
USDCAD Snapshot: Open 1.2918-22, Overnight Range 1.2887-1.2934, Previous close 1.2895, WTI open $68.38, Gold open $1798.16
The Canadian dollar plunged under a wave of risk-off sentiment washing over global markets.
The latest surge in Omicron variant cases led to another round of restrictions in many countries. The Netherland essentially closed, while Germany, Austria, Denmark, and Britain imposed or are considering a new array of business closures, travel restrictions, and capacity limits. Canada is not unscathed. Quebec reported a new daily record of cases on Friday, and Ontario said it had 4,177 new cases on Sunday. Politicians in both provinces have already announced new measures to combat the spread of the virus.
Risk sentiment also soured after news that more Chinese property developers could not pay debts, which may have prompted the Peoples Bank of China (PBoC) to cut the 1-year Loan Prime Rate to 3.80% from 3.85%., the first move since April 2020.
The Omicron outbreak and fears of slowing China economic growth helped drive West Texas Intermediate (WTI) oil prices down 4.8% overnight. Hedge funds are reportedly continuing to cut positions, another factor weighing on prices, as are fears of a 2022 Q1 oil glut.
Fed Board of Governor s member Christopher Walker helped encourage US dollar demand in a speech Friday. He implied a rate hike was possible in March, saying, “I believe an increase in the target range for the federal funds rate will be warranted.”
US political drama also spooked markets. Democrat Senator Joe Manchin announced he would not support President Biden’s Build Back Better bill, saying it was too expensive, claiming it will cost trillion’s more than expected. The news was enough for Goldman Sachs analysts to cut their US growth forecast in Q1 2022 to 2.0% from 3.0%.
USDCAD tracked S&P 500 futures and oil price movements very closely. Prices rallied from a low of 1.2775 on Friday to 1.2934 overnight before drifting down to 1.2920 in NY trading. The currency pair’s direction is dictated by broad US dollar sentiment and the greenback is in demand as a safe-haven.
EURUSD slumped due to the Omicron outbreak in Europe and ongoing divergent ECB and Fed monetary policies. The Fed is getting ready to raise rates to combat inflation. In contrast, ECB President Christine Lagarde and many of her colleagues continue to say,” inflation is transitory,” and that they expect to leave interest rates unchanged in 2022.
The US and Canadian economic calendars are empty.