The Canadian dollar traded firmer, due to a mix of broad U.S. dollar weakness, rising crude prices, and bearish technicals. Traders were also trimming bearish Canadian dollar positions ahead of today’s release of the U.S. and Canadian employment reports.
Canada is expected to lose jobs for the second month in a row. The latest round of lockdown measures in some regions of the country suggest employment fell 47,500 in January compared to 62,600 job losses in December. Despite that, Canadian dollar sentiment is modestly positive.
The USD/CAD downtrend from March 2020 is alive and well below while prices are below $1.2890. Traders are looking for another test of support in the $1.2520, area, last seen in April 2018. The bearish USD/CAD sentiment stems from prices rejecting a break above the downtrend line at the end of January. Yesterday’s topside breakout attempt didn’t even clear $1.2842. A decisive break of support at $1.2760 suggests another short-term top is in place, and a retest of $1.2520 is likely.
Global equity traders followed Wall Street’s lead and bought stocks. Equities are getting a huge amount of traction from chatter around U.S. President Joe Biden’s stimulus plan. A watered-down version (from proposed $1.9 trillion to $1.3 trillion) is expected to get approved. The NASDAQ has gained 20%, S&P 500 15%, and DJIA 13%., since Biden’s election, in anticipation of a vaccine-fueled economic boom, in a low-interest rate environment. Today’s U.S. employment report may inject an element of two-way risk into that view.
The U.S. non-farm payrolls (NFP) forecasts range from a loss of 20,000 to a gain of 200,000 jobs. The consensus is an increase of 50,000. Regardless, equity traders are likely to view any result as positive. FX traders, not so much. The U.S. dollar retreated overnight.
EUR/USD traded with a bit of a bid overnight, rising from $1.1953 to $1.1987. The price action was contained as bearish technicals below the $1.2020 area limited gains from pre-NFP position adjustment demand. The European Union’s mismanagement of COVID-19 vaccines, existing lockdown measures, Italian political uncertainty, and the perception of U.S. economic outperformance, weighed on the currency.
GBP/USD is consolidating gains after the Bank of England appeared to have pushed negative interest rates to the backburner. Prices bounced in a $1.3667-$1.3711 range.
AUD/USD traded in a $0.7585-$0.7625 band. Upbeat comments from Reserve Bank of Australia Governor Phillip Lowe, and broad U.S. selling pressures, lifted prices off the low. NZD/USD tracked AUD/USD moves but underperformed.
U.S. dollar direction will be determined by this morning NFP data, equity market action, and U.S. stimulus news.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
