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USD/CAD - Canadian dollar rallies

- Oil prices rebound after risk sentiment improves

- Biden administration will boycott Beijing Olympics

- CAD and AUD outperform vs US dollar

USDCAD Open 1.2696-00, Overnight Range 1.2698-1.2766, Previous close 1.2757, WTI open $71.65, Gold open $1780.48

The Canadian dollar added to yesterday’s gains overnight in a move precipitated by improved risk sentiment, which propelled oil prices higher.

West Texas Intermediate (WTI) gained more than 3.0% in overnight trading due to a combination of rising global equity markets, Chinese central bank actions, and speculation that COVID-19 Omicron is a milder variant than Delta.

WTI prices have recouped all of December’s losses in anticipation of renewed demand after the Chinese government and the Peoples Bank of China (PBoC) took measures to shore up economic growth. The PBoC’s planned 0.50% rate cut on December 15, combined with government promises to increase support to small business, and helping alleviate pressures on property developers bolstered risk sentiment around the globe and fueled the oil price rally.

Asia stock markets closed higher, while European bourses and Wall Street futures posted significant gains. Gold prices are steady, and the US 10-year Treasury yield is 1.4328%.

The Canadian dollar accelerated higher due to a combination of rising oil prices and anticipation of a hawkish outcome from Wednesday’s Bank of Canada monetary policy meeting. Canadian inflation is rather frothy, and last Friday’s employment report showed a booming job market.

Analysts expect the policy statement to have a bullish bias and increase the odds of a March rate hike.

Today’s Reserve Bank of Australia (RBA) monetary policy statement may provide a clue as to the BoC’s plans. The RBA left rates unchanged and appeared to downplay risks from the Omicron variant. Governor Philip Lowe said, “The emergence of the Omicron strain is a new source of uncertainty, but it is not expected to derail the recovery.

The BoC may view Omicron in a similar light.

President Biden announced a political boycott of the Beijing Olympics, meaning there will not be any official USD government representation at the games, citing ongoing Human rights abuses as the reason. China reacted snarkily with the “quasi-official” Global Times tweeting, “To be honest, Chinese are relieved to hear the news, “because the fewer US officials come, the fewer viruses will be brought in.

”EURUSD traded bearishly in a 1.1252-1.1298 range weighed down by weak data, a dovish ECB outlook, and by EURUSD selling for carry trades.

GBPUSD followed EURUSD lower due to diminished expectations for near-term rate hikes and ongoing Brexit issues.

Canadian and US trade data is ahead.