The Canadian dollar rallied overnight, alongside the rest of the G-10 major currencies. USD/CAD closed at $1.2669 yesterday and dropped to $1.2632 just before New York opened. Profit-takers emerged, and prices rallied back to $1.2690.
The Georgian Senate-run-off vote is gripping markets. Democrat Raphael Warnock won his seat over incumbent Republican Senator Kelly Loeffler. The other Democrat candidate Jon Ossoff has a tiny lead over his opponent.
The Senate race matters to markets because if the two Democrat candidates win, Joe Biden’s government has control over the House and the Senate, making it easier for them to enact legislation. If so, analysts expect substantially higher fiscal spending, giving a boost to global economic growth and undermining the U.S. dollar. They expect the new administration to increase corporate taxes, shift the focus to clean energy, and more money for Obamacare.
Risk sentiment got an added boost from oil prices. Yesterday, Saudi Arabia surprised markets, and members of the Organization of the Petroleum Exporting Countries by announcing they would trim their oil production by one million barrels/day as of February 1. WTI spiked from $48.00/b on Tuesday to $50.56/b overnight, before slipping to $50.00 in early Toronto trading.
The Canadian dollar which was already climbing from the improved global risk sentiment, got an added lift from the Saudi news.
Elsewhere, EUR/USD broke above another major resistance level when it traded through $1.2330, setting the stage for additional gains to $1.2525. Traders were not concerned with the slew of worse than expected Services Purchasing Managers Index reports in Germany and around the eurozone, as they were impacted by COVID-19.
GBP/USD is consolidating its December games in a $1.3550-$1.3700 range with plenty of travel time in between. Prices are supported by the Brexit trade deal news but the lockdown measures from the latest outbreak of COVID-19 are weighing on prices.
In Asia, the Caixin December Services PMI (actual 56.3 vs Nov. 57.8) added support to the positive risk mood, and underpinned the Australian and New Zealand dollars. AUD/USD continues to be in demand in part, due to high iron ore prices.
The People’s Bank of China said they will make monetary policy "more flexible, targeted, and appropriate" in 2021
Traders are looking ahead to the release of the FOMC meeting minutes.
They plan deeper reforms on loan Prime Rate, and will step up regulation of financial activities on internet platforms.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
