USD/CAD - Canadian Dollar Rally Stalls

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- US dollar clawing back losses from employment report

- US equity futures slide and risk sentiment sours

- CAD best performing currency compared to Friday’s opening levels

USDCAD Snapshot: Open 1.2619-23, Overnight Range-1.2613-1.2655, previous close 1.2643, WTI open $78.84, Gold open $1799.92

The Canadian dollar began the NY trading week as the best performing G-10 major currency compared to Friday’s opening level. Those gains eroded in early NY trading, as sharply falling US equity futures soured risk sentiment.

USDCAD plunged from 1.2723 to 1.2631 Friday after the better than expected Canadian employment data and a disappointing US nonfarm payrolls report. The losses continued overnight and hit 1.2613 just before NY opened.

The US dollar weakness due to the employment report may not be sustainable. The employment data is dubious due to Omicron and Canada’s gains may be fully unbound when the January data is available.

The Canadian dollar continues to be underpinned by rising oil prices. WTI is consolidating post-NFP gains in a $78.50-$80.50 band. Traders appear to be discounting an Omicron-induced oil demand slowdown, with prices underpinned by supply disruptions in Libya and Kazakhstan.

The US dollar is on the defensive as traders continue to digest Friday’s weaker than expected US non-farm payrolls report headline. However, the details were not that bad. The job gain numbers from the November and October reports were revised higher, and the unemployment rate dipped to 3.9%. Nevertheless, the impact of the Omicron virus suggests the results are dodgy but not enough to derail the Fed’s rate hike plans.

Bond traders seem to agree. The US 10-year Treasury yield jumped to 1.806% overnight, from 1.724% on Friday morning, but FX traders are ignoring the gains.

The US and NATO are meeting with Russian officials to diffuse tensions around Putin’s plans for the Ukraine, and Ukrainian officials are not invited. Traders are blissfully ignoring the risk that Russia annexes the Ukraine.

EURUSD fell from the Asia open and is consolidating those losses as it sits in the middle of the post-NFP range of 1.1290-1.1363. The sharply divergent ECB and Fed interest rate outlooks suggest EURUSD gains will be limited.

GBPUSD is supported by the risk of higher UK rates while ECB rates remain ultra-low, although ongoing Brexit issues could derail the rally.

USDJPY traded lower in part due to poor liquidity as Japan was closed for a holiday. USDJPY fell to 115.198 from 115.84.

AUDUSD and NZDUSD are consolidating their post-NFP gains but will continue to track broad risk sentiment.

There are not any US or Canadian economic reports on tap today.
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