- Risk sentiment improves ahead of FOMC minutes
- AUDUSD soars on China coal plans
- US dollar reverses Tuesday’s rally -AUD outperforms
USDCAD snapshot open 1.3546-50, overnight range 1.3545-1.3678, close 1.3669
The Canadian dollar rallied with a vengeance in Europe and nearly fully-recouped Tuesday’s losses. The rally had nothing to do with domestic issues or events but was entirely due China and Australia developments.
It would appear that Chinese President Xi Jinping has forgiven Australia for demanding an inquiry into China’s role in the coronavirus pandemic. Beijing bureaucrats are in the process of re-allowing major companies to resume importing Australian coal, which has been banned for two years.
It was great news for the Australian dollar and the other commodity currencies (CAD and NZD) went along for the ride.
USDCAD plunged from 1.3678 to 1.3541 and in the process, turned the intraday technical picture from bullish to bearish. Further losses below 1.3470 suggest a retest of support in the 1.3250 area.
Traders are awaiting the release of the minutes from the December 14 FOMC meeting. That’s when the Fed raised rates by 50 bps after four consecutive 75 bps hikes. At first, analysts considered it a dovish move, but Fed Chair Powell’s press conference put that view to rest. Mr Powell said that rates had to keep rising until inflation was a lot closer to the Fed’s 2.0% target saying, “we are not there yet.”
The Canadian dollar is not getting any support from oil prices. West Texas Intermediate has dropped 8.7% since reaching $81.46/barrel yesterday. Trader’s fear that surging new coronavirus cases in China will delay expected increases in oil demand. However, ongoing Opec production cuts and sanctions on Russian energy exports should limit losses.
EURUSD rallied to 1.0635 from 1.0542, supported by better than expected German and Eurozone Services PMI data. Eurozone Services PMI was 49.8 in December compared to 49.1 in November.
GBPUSD rose from 1.1959 to 1.2086 on the back of broad US dollar weakness. However, gains may be limited due to ongoing labour unrest and fears of a severe UK recession.
USDJPY traded erratically in a 129.94-131.46 range. Prices were weighed down by a drop in the US 10-year Treasury yield to 3.696% from 3.754% and expectations that the BoJ will end its ultra-low monetary policy in the near future.
AUDUSD rallied from 0.6719 to 0.6885 from 0.6719 on news China may resume coal imports from Australia. NZDUSD rallied in sympathy, climbing from 0.6242 to 0.6351.
Today’s US data includes JOLTS job openings, ISM Manufacturing PMI and the FOMC meeting minutes.
