The Canadian dollar opened at the bottom of its overnight range, then added to losses in early Toronto trading. USD/CAD rallied to $1.2823 in early Toronto trading as EUR/USD, and the U.S. Dollar index suggest further U.S. dollar demand was likely.
The Canadian dollar resisted the early morning weakness due to the overnight surge in oil prices. West Texas Intermediate jumped to $56.22 from a session low of $55.80. Prices were propelled higher due to support from existing production cuts by the Organization of the Petroleum Exporting Countries, and a high degree of compliance by member nations, as well as shrinking U.S. crude inventories. Yesterday, the Energy Information Administration (EIA) reported weekly crude stocks dropped 0.994 million barrels, the same as the decline the prior week.
The U.S. dollar is in demand and gained against all the major G-10 currencies overnight. The U.S. House of Representatives voted to change the Senate rules to allow the $1.9-trillion Biden Relief bill to pass with just a simple majority, rather than the 60% usually required. The Democrats have a simple majority. Even so, the size of the bill will likely be reduced to $1.3 trillion.
The U.S. stimulus plan combined with the increased numbers of COVID-19 vaccinations suggests a strong domestic economic rebound, which will leave other major G-10 economies in their dust.
Canada will be one of the laggards. The U.S. has delivered at least one vaccine dose to over 8.3% of the population while Canada has barely vaccinated 1.0%.
Canada is also raiding the COVAX program to secure additional vaccines. COVAX is a program to provide vaccines to poor and developing countries. Canada is the only G-7 nation to raid their coffers.
However, the Canadian government’s handling of the COVID-19 crisis and vaccinations has not had much, if any, negative impact on the currency. The Canadian dollar may seriously underperform against the other commodity bloc currencies as the local economic recovery may be delayed.
The Bank of England left interest rates and other policy settings unchanged, as was widely expected. The BoE downgraded its 2021 Gross Domestic Product growth forecast to 5.0% from 7.5%, but still expects a robust, post-pandemic recovery.
U.S. Jobless claims are to rise 830,000, which, if correct, is little changed from last week.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
