The Canadian dollar inched higher overnight, supported by broad, but mild risk sentiment. Rising numbers of COVID-19 cases, exacerbated by aggressive mutations of the virus, and vaccine supply issues, are offset, to a degree, as traders look forward to a post-pandemic, global economic boom.
Meanwhile, the euphoria around Joe Biden’s inauguration as U.S. president and his $1.9-trillion COVID Relief bill is fading. The Washington Post reports that Democrats and Republicans are questioning the need for some of the spending. Markets are also concerned about increased animosity if the Democrats go ahead with their plan to impeach former President Donald Trump and send articles of impeachment to the Senate today.
The Canadian dollar continues to be supported by last week’s Bank of Canada policy statement, which introduced the possibility of tapering quantitative easing purchases if the economy improves. That is not a surprise. However, the headline reiterated the "Bank of Canada will hold current level of policy rate until inflation objective is achieved, continues quantitative easing."
The Canadian dollar received some additional support with the rise in crude oil prices. West Texas Intermediate (WTI) climbed to $52.86/barrel from Friday’s close of $51.99/b. Those gains were mostly due to broad U.S. dollar weakness and hopes for increased demand from China due its post-pandemic recovery.
Asia equity indexes closed higher, with Hong Kong’s Hang Seng Index surging 2.41%. European stock traders didn’t follow suit. The German DAX is down 1.25%, in part due to concerns around COVID-19 virus mutations. French President Emanuel Macron is expected to announce a third national lockdown on Wednesday. EUR/USD is trading sideways in a $1.2141-$1.2183 range.
Ongoing Italian political concerns and modestly bearish technicals are weighing on prices. Prices are also drifting lower ahead of Wednesday’s Federal Open Market Committee meeting.
GBP/USD is inching higher despite the impact of COVID-19 restrictions on the economy, and the risk that the U.K. tightens measures further. Those concerns are alleviated due to the U.K.’s efficient vaccination program with over 9.5% of the population receiving at least one dose. GBP/USD technicals remain positive above 1.3460.
NZD/USD is trading near the top of its overnight range, with prices continuing to be supported by expectations that the Reserve Bank of New Zealand will be less dovish in 2021.
The World Economic Forum starts today in Davos, Switzerland, with speeches from China’s Xi Jinping, Emmanuel Macron, and German Chancellor Angela Merkel
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
