The Canadian dollar traded sideways in a narrow range overnight, as did the other G-10 major currencies as traders awaited the U.S. nonfarm payrolls (NFP) data for December. Seasonal factors and COVID-19 fall-out suggested NFP would rise an unimpressive 75,000 in December. The Canadian employment picture was expected to be uglier, with the country losing 27,500 jobs.
Arguably, the twin employment reports will not have any lasting impact on FX. The weak data is due to the sharply rising number of new coronavirus cases and various measures to contain the spread.
The U.S. political drama will continue to provide a distraction for markets but should have little impact on trading.
Wall Street closed with fresh record highs, U.S. 10-year Treasury yields gained 1.1% overnight and are at 1.083%, and the U.S. dollar index is trading at 89.89. The rising Treasury yields are underpinning the USDX. Equity traders are not concerned about higher yields after last year's NASDAQ and S&P 500 performance. Why should they? Those indexes rose 43.6% and 16.3% respectively.
EUR/USD traded in a $1.2214-$1.2272 range and is sitting in the middle of that band in New York trading. This week’s drop from the 1.2345 peak is being chalked up to a short-dollar squeeze, as many traders were positioned for broad U.S. dollar weakness in Q1 2021. Eurozone November unemployment fell to 8.3% from 8.5%, but the news was ignored. The EUR/USD technicals are bullish while prices are above $1.2200, representing the uptrend line of the December rally.
GBPUSD remains rangebound in a $1.3540-$1.3604 range. Traders are unwilling ling to commit due to the stringent coronavirus lockdown measures in the U.K., which is capping the upside. However, hopes for a robust post-lockdown economic rebound are limiting losses.
USD/JPY bears are getting concerned. Hopes that prices will drop to 101.20 are rapidly fading, thanks to the break above 103.90 overnight, which risks a retest of the 105.40 area. The currency pair is underpinned by broad U.S. dollar strength and the steep rise in Treasury yields.
The Canadian dollar is getting a bit of additional support from this week’s surge in crude oil prices with WTI comfortably above $50.00/barrel. In addition, the Canadian dollar is entrenched in a steep uptrend since last March which suggests further gains ahead.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
