The Canadian dollar is on the defensive after snapping the year-long downtrend line at $1.2610. However, follow-through selling pressures ran into heavy month-end and quarter-end demand for Canadian dollars. The S&P 500 has gained 3.7% month-to-date which suggests some portfolio managers will need to buy Canadian dollars to adjust their portfolios to their benchmarks.
FX markets are cautious ahead of President Biden’s latest stimulus plan called "Build Back Better." The plan reportedly spends $2.0 -$4.0 trillion on infrastructure, while raising $3.0 trillion in new corporate taxes and taxes on wealthy individuals. The details will be unveiled today at 4:20 pm ET.
EUR/USD dropped to 1.1705 from 1.1747 due to widening U.S. and E.U. interest rate differentials and dovish comments from European Central Bank President Christine Lagarde. She continued to stress the uncertainties to the economic outlook and said it would be "quite some time" before they would consider raising rates. Eurozone Consumer Price Index rose 0.9% m/m in March. EUR/USD is trading with a negative bias looking for a break of $1.1700 to extend losses to $1.1650.
GBP/USD rallied from $1.3718-$1.3794 due to slightly better than expected economic data, positive comments from Bank of England officials recently, and GBP demand due to month-end and quarter-end rebalancing flows. The short-term technicals are bullish above 1.3720 looking for a break of $1.3850 to extend gains to $1.4000.
USD/JPY traded to 110.954 from 110.28 with Japanese year-end flows and steady to firm Treasury yields underpinning prices.
AUD/USD eked out a small gain due to broad U.S. dollar weakness and better than expected Building Permits data. NZD/USD inched higher as well. Robust China Purchasing Managers Index data underpinned both currency pairs.
USD/CAD continued to consolidate recent gains in a $1.2595-$1.2629 range, with month-end US dollar selling pressures helping to cap the topside. The currency pair’s direction continues to be dictated by broad U.S. dollar sentiment. However, the prospect of an increased number of people vaccinated, the outlook for higher oil prices, and spillover effects from the latest US stimulus plan may slow USD/CAD gains.
Today’s Canadian data includes January Gross Domestic Product (forecast 0.5% m/m), Industrial Product Price and Raw Material Price. The U.S. releases Chicago PMI (forecast 60.7) and pending home sales.
