The Canadian dollar traded sideways in an uneventful overnight session.
It managed to outperform against AUD/UAD and NZD/USD, thanks to rising crude oil prices. West Texas Intermediate (WTI), the North American benchmark, extended this week’s gains and climbed to $53.70/b. Oil prices continue to be supported by Saudi Arabia’s million-barrel/day production cut that starts February 1 and shrinking U.S. crude inventories. The American Petroleum Institute reported that crude stocks fell 5.8 million barrels in the week ending January 8.
Canadian dollar traders do not seem concerned about the latest coronavirus developments in Canada. Ontario announced another State of Emergency, effective Thursday, that severely restricts business activity and demands citizens stay home and only leave for necessities. Lockdown measures are in place in other regions as well.
FX traders are not worried. Perhaps they should be. Canada will not have vaccinated its population until September at the earliest.
Meanwhile, other G-10 majors are aggressively rolling out vaccination programs, meaning Canada will be at a disadvantage, and economic growth may lag that of its competitors.
U.S. Federal Reserve officials are pushing back against market talk of an early start to tapering of Quantitative Easing purchases. Kansas City Fed President Ester George said that the Fed needs to achieve its inflation and employment goals before adjusting QE policy. Her comments were echoed by other officials and helped to halt the latest Treasury yield rally.
U.S. presidential political dysfunction is just a distraction for FX traders. They are more interested in Joe Biden’s multi-trillion-dollar stimulus plans which are expected to be detailed on Thursday. The plan’s key parts have already been leaked, which risks a "buy-the-rumour-and-sell-the-news" reaction.
EUR/USD traded in a $1.2208-$1.2220 range in Asia then dropped to $1.2163 in Europe after European Central Bank official Francois Villeroy reminded traders that the central bank is monitoring the rise in EUR/USD. President Christine Lagarde said "Economic projections from December are clearly plausible and the assumptions underlying the forecasts are still correct.
"Forecasts are premised on the assumption that lockdown measures will be imposed until the end of Q1."
GBP/USD extended yesterdays’ gains, climbing to $1.3700 from $1.3663. The gains were on the back of Bank of England Governor Andrew Bailey’s comments suggesting that U.K. rates would not go negative.
U.S. Consumer Price Index is expected to rise to 0.4% m/m in December, from 0.2% in November, due to higher energy prices.
