- 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 1.2808-12, Overnight Range 1.2775-1.2825, Previous close 1.2776, WTI open $70.95, Gold open $1808.07
The Canadian dollar rally ended abruptly yesterday, and prices have traded erratically overnight. USDCAD traded in a 1.2770-1.2808 range until the NY open, then rallied to 1.2825 after S&P 500 futures came under pressure.
Canadian dollar direction is at the mercy of global risk sentiment, and domestic factors are largely ignored. This week Canadian inflation was a torrid 4.7% y/y in November, but traders disregarded the data since it was unchanged from the October reading. The Bank of Canada can’t ignore the results.
The federal government renewed the BoC’s monetary policy framework, and the focus remains on price stability. You cannot have price stability if inflation continues to rise.
Canadian bond traders certainly know this, and they have priced in a 0.25% rate hike in March.
The Bank of England reacted to soaring inflation and raised UK rates by 0.15% to 0.25%. GBPUSD soared on the news, rising to 1.3378 where it peaked. Prices fell and continued with GBPUSD trading at the low of its 1.3282-1.3338 overnight band. The rate increase, which was a tad surprising, was also rather tepid and ineffectual. Traders quickly shifted their focus to concerns about rising Omicron variant cases and new containment measures, in addition to fears around the ongoing EU/UK Brexit dispute.
EURUSD is trading in a narrow 1.1313-1.1348 band, with analysts still digesting the implications of yesterday’s ECB monetary policy decision. The ECB left interest rates unchanged which was expected. They announced that they would wind down the Pandemic Emergency Purchasing Program (PEPP), a modestly hawkish move, by March. However, they also decided to increase the Asset Purchase Plan (APP) which negated the hawkish sentiment.
EURUSD saw added selling pressure today after the German Ifo Survey fell for the sixth consecutive time, and the Bundesbank downgraded its 2022 GDP forecast to 4.2% from 5.2% previously.
The Bank of Japan didn’t surprise anyone when it left monetary policy unchanged. USDJPY fell from 113.84 in Asia to 113.14 in NY as lower Treasury yields and safe-haven demand for yen weighed on prices.
The US and Canadian economic calendars do not have any top tier data scheduled.
