The Canadian dollar gave back all of yesterday’s gains overnight. There was widespread U.S. dollar demand as traders trimmed positions ahead of Chinese New Year holidays, and long weekends in the U.S. and Canada. Position trimming wasn’t just confined to FX markets. Global equity indexes are mixed to flat, while U.S. equity futures are modestly lower. Gold and oil prices edged down as well.
Bitcoin (BTC/USD) was the exception. The cryptocurrency soared to a record high of $48,307.35. Traders believe the Tesla purchase of $1.5 billion, and news that Bank of New York Mellon planned to store, and issue digital assets helped reinforce sentiment that BTC/USD as a legitimate investment product.
Global risk sentiment continues to dine out on expectations of a broad and robust post-pandemic economic boom. A Wall Street Journal survey of more than 60 economists predicts that 2021 U.S. Gross Domestic Product growth will be 4.9% compared to 4.3% in January. The increase is due to President Joe Biden’s proposed stimulus plan and rising numbers of COVID-19 vaccinations.
Rising GDP forecasts are also lifting global risk sentiment, which puts the U.S. dollar on the defensive as the so-called "risk-assets" are in demand.
EUR/USD broke above resistance in the $1.2050-70 area earlier this week, and prices consolidated gains in a $1.2098-1.2134 range overnight. There wasn’t any economic data of note. European Central Bank policymaker and Bundesbank President Jens Weidmann warned of rising German inflation, but he is a known hawk, and his words fell on deaf ears. However, EUR/USD gains are hampered by the EU’s shoddy rollout of COVID-19 vaccines. EU President Ursula von der Leyden admitted that officials "dropped the ball" in approving and securing vaccines. Analysts expect that the EU economic recovery will be a whole quarter later than that of the U.S. and U.K.
The Canadian dollar is poised to end the week with modest gains. USD/CAD opened in New York on Monday at $1.2778. Prices declined to $1.2660 yesterday due to U.S. dollar selling pressure after the weekly jobless claims data was somewhat disappointing. USD/CAD rallied overnight, rising from $1.2698 to $1.2754, coinciding with a dip in WTI oil prices from $58.68/barrel to $57.43/b in Europe. The short-term technicals are bearish while prices are below $1.2780, looking for a return to $1.2660.
The only data of note is Michigan Consumer Sentiment which is expected at 80.8 compared to 79 previously. The increase is due to improved confidence stemming from Biden’s $1.9-trillion stimulus plan, and rising stock markets.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
