· Opec agrees to 400,000 bpd increase in January
· Robust US and Canadian employment reports expected
· Hawkish comments from Fed officials lift US dollar
USDCAD Open 1.2837-41, Overnight Range 1.2805-1.2844, Previous close 1.2806, WTI open $68.17, Gold open $1771.40
Despite a rebound in oil prices and forecasts for a solid domestic employment report, the Canadian dollar remains on the defensive.
West Texas Intermediate (WTI) rebounded from an overnight low of $66.47/barrel to $68.68/b in Europe in what appears to be a textbook example of “sell the rumour, buy the news” trading. WTI plunged 20%m from $78.25/b a week ago to $62.95/b yesterday. Traders feared an oil supply glut from new travel restrictions arising from the Omicron variant, increased production by Opec, and plans for US, China, Japan, and the UK to release Strategic Petroleum Reserves. Bargain hunters decided that the price drop was too much, to fast.
The Canadian dollar dropped alongside falling oil prices but has yet to benefit from the higher prices. Traders are awaiting the US and Canada employment data. Canada is expected to show a gain of 35,000 jobs and a drop in the unemployment rate to 6.6% from 6.7%.
The US NFP forecast is a gain of 550,000 jobs in November and a drop in the unemployment rate to 4.5% from 4.6%, which many consider the “full-employment” level. Analysts suggest that Average Earnings components will be a focus due to concerns about a wage/price spiral.
The US dollar is in demand against the G-10 major currencies due to expectations the Fed will raise interest rates in May or June. Those expectations were reinforced yesterday after a series of hawkish comments from Fed officials San Francisco Fed Chair Mary Daly said officials might need to craft a plan for raising rates. Atlanta Fed President Bostic said it may be “appropriate to full forward the lift-off.” Cleveland Fed President agrees with the others acknowledging that if inflation remains elevated, “we are in a position to be able to hike if we have to.”
Their remarks come on the heels of Fed chair Powell’s hawkish shift during this week’s Congressional testimony.
EURUSD traded in a 1.1283-1.1314 band with prices weighed down by dovish comments from ECB President Christine Lagarde, stating that a rate hike next year is very unlikely. Eurozone and German Services PMI data was not a factor.
GBPUSD ranged in a 1.3270-1.3300 band. Prices were undermined when BoE MPC member Michael Saunders said rate increases should be delayed until there is further data from the new Omicron variant.
USDJPY bounced around in a 112.97-113.48. Safe-haven demand for yen and Treasury yield weakness pressured prices while hawkish Fed comments and broad US dollar strength provided support.
AUDUSD and NZDUSD dropped due to broad US dollar demand.
