- Geopolitical tensions spooking markets
- FOMC and BoC meetings on Wednesday
- Safe haven demand lifts USD, CHF, and JPY, sinks commodity currency bloc
USDCAD Snapshot: Open 1.2638-42, Overnight Range-1.2621-1.2656, previous close 1.2638, WTI open $84.01, Gold open $1837.83
The Canadian dollar is collateral damage. An avalanche of negative risk sentiment roared across markets on Monday, sweeping away everything in its path, and the Loonie didn’t escape.
USDCAD surged from a low of 1.2556 to 1.2700 on Monday when S&P 500 index selling snowballed into a panic, which knocked the index down over 4.0% intraday. That move rattled bonds, gold, USDCHF, and USDJPY, which sank as investors scrambled for safe-haven assets.
In the afternoon, bottom-fishers emerged. The S&P 500 surged, recovering all its losses and then some, and managed to post a small gain at the close. The 10-year Treasury yield rebounded, and the USDJPY and USDCHF recouped some losses. The Canadian dollar followed suit and closed well-above its session low.
The Canadian dollar is not getting any benefit from the risk that the Bank of Canada may raise rates on Wednesday, which, if it happens, would be the first of six hikes expected in 2022. That is two more than what analysts expect from the Fed.
In addition, West Texas Intermediate oil prices have climbed over 10% in January and remain underpinned by geopolitical tensions from Ukraine and Middle East. Analysts expect oil demand to rise while supplies shrink, which they suggest would drive WTI above $100.00/barrel.
Nevertheless, Canadian dollar traders are focused on external developments, particularly concerns about renewed equity market weakness, and Wall Street price action continue to be the focus today.
EURUSD is trading with a negative bias and is at the bottom of its 1.1272-1.1328 range. German IFO Survey improved for the first time since June but was ignored.
GBPUSD is under pressure due to bearish technicals, negative risk sentiment, and ongoing UK political issues. A break below 1.3390 risks further losses to 1.3310.
USDJPY traded in a 113.68-114.15 range, rising with the US 10-year Treasury yield, which climbed to 1.78% from 1.716% yesterday.
AUDUSD was quieter than usual due to a National Holiday. Higher than expected Australian CPI (actual 3.5%, vs forecast 3.2% y/y) was overshadowed by external issues.
US Housing Price Index and Case-Shiller Home Price Index data are due.
