The Canadian dollar met resistance and the retreated. USD/CAD dropped from a closing level of $1.2693 but ran out of steam at $1.2677, then bounced to $1.2709 in early New York trading. The move is entirely due to the Antipodean currencies’ behaviour, which also retreated from their best levels.
Nevertheless, it is still a U.S. dollar story, and that story is "Sell." U.S. dollar bears are in control as the "reflation trade" gathers momentum, thanks to U.S. Presidednt Joe Biden, COVID-19 vaccines, and a dovish Federal Reserve.
As for Biden, his $1.9-trillion COVID-19 Relief plan and the COVID-19 vaccines are the turbo-charge driving positive risk sentiment. That sentiment gets Global equities have rallied steadily, and gold and oil prices are higher. The U.S. dollar is under pressure across the board.
The number of new coronavirus cases in the U.S. has plummeted. On January 8. there were 255,798 cases reported: yesterday, just 108,321. Also, 10% of the American population has received at least one dose of the vaccine.
Federal Reserve Chair Jerome Powell addresses the Economic Club of New York today.
There is some debate as to whether the equity market gains and the Biden stimulus plan will make him alter his "low-rates-for-a-long-time" stance. It won’t. He just reiterated that the time to raise rates “isn’t anytime soon”, and it is unlikely that he changed his mind in just two weeks.
EUR/USD traded cautiously in a $1.2110-43 range, as traders were wary about resistance in the $1.2150 zone. There is a sharp discrepancy between COVID-19 and vaccines in Europe compared to America, and it is Europe that is behind the curve. The U.S. is easing restrictions and vaccinating citizens while the European Union is still struggling with outbreaks. Germany is considering extending lockdown measures until March 14. German inflation data was as expected and ignored.
GBP/USD bulls are relentless. The currency climbed from $1.3565 on February 4 and touched $1.3855 today, before slipping to $1.835. The short term technicals are warning that a correction is overdue.
U.S. January Consumer Price Index is expected at 1.5% y/y for headline and core, and it will not have any impact on FX markets.
The Canadian dollar will continue to take direction from broad U.S. dollar moves.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians