USD/CAD - Canadian Dollar Drifts with Positive Bias

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The U.S. dollar opened on a mixed note after a quiet overnight session. The Swiss franc outperformed, rising 0.27%, while the New Zealand dollar was the worst performer, losing 0.18% since yesterdays open. The Canadian dollar is unchanged.

Canadian dollar price action was subdued in overnight action, although the outlook is still positive, supported by firm crude prices. West Texas Intermediate (WTI) oil prices have retreated from yesterday’s peak of $69.97/barrel, but the dip was shallow and merely due to position adjustments ahead of Thursday’s U.S. inflation data.

Oil prices are expected to reach $100/b in 2021 due to rising demand and shrinking supply.

The Canadian dollar continues to be underpinned by expectations for a robust economic recovery in Q2, fueled by pent-up consumer demand when the country fully emerges from lockdown restrictions.

The Canadian dollar received a boost in April after the Bank of Canada revised the timing for a rate hike from 2023 to H2 2022 and substantially upgrading its economic growth forecast. There is nothing unusual expected at tomorrow's BoC meeting, mainly because there is no press conference scheduled. However, Deputy Governor Timothy Lane speaks Thursday and may provide more clarity on the BoC’s outlook.

Euro area equity indexes gave up some earlier gains following upwardly revised Q1 Gross Domestic Product data (actual -1.3% q/q vs 1.9%q/q). Some analysts suggest the improvement may force the European Central Bank to begin tapering Quantitative Easing purchases ahead of schedule. That’s a bit of a stretch, as policymakers continue to stress the need for ample monetary policy accommodation.

EUR/USD is drifting in a $1.2165-$1.2195 range, trading with a slight negative bias after the single currency failed to hold gains above $1.2200. German ZEW data was mixed but still positive. Economic Sentiment decreased by 4.6 points to 79.8 points. By contrast, the assessment of the economic situation improved very significantly (actual - 9.1 points, vs 40.1 in the previous month). Traders are awaiting Thursday’s ECB meeting.

GBPUSD traded lower, falling from 1.4183 to 1.4131 due to broad U.S. dollar strength. U.K. BRC like-for-like Retail Sales rose 18.5% in May compared to 39.6% in April.

USDJPY climbed from 109.21 to 109.55 after U.S. 10-year Treasury yields inched higher. Q1 GDP was better than expected (actual -3.9 vs forecast -4.8%).

U.S. and Canadian trade reports are ahead.

Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians

Learn how KnightsbridgeFX can help you save up to 2% when buying or selling US dollars compared to your Canadian bank’s rates – click here to compare bank rates