The Canadian dollar consolidated recent gains in an uneventful overnight session. The Canadian dollar is garnering support from fading risks of the U.S. Federal Reserve announcing tapering plans before year-end, which is a complete reversal from last Wednesday’s view.
Last week, traders worked themselves into a lather after the Federal Open Market Committee minutes revealed "most participants noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year" because they saw the tapering criterion "as satisfied with respect to the price-stability goal and as close to being satisfied with respect to the maximum-employment goal."
The reaction was a tad perplexing considering that many FOMC policymakers said words to that effect in speeches and interviews following the July 28 meeting, which were largely ignored.
Concerns about a hawkish Fed and rising numbers of COVID-19 delta-variant cases in the U.S. and Asia fueled risk aversion sentiment and US dollar demand. Those fears started to fade Friday, and by yesterday, traders were in full "risk-on" mode.
Wall Street closed at record highs, which led the major Asian equity indexes to finish with solid gains. European bourses are more cautious and are trading lower except for the German DAX. S&P 500 and Wall Street futures are modestly higher while U.S. Treasury yields are steady at 1.262%.
The Canadian dollar is finding support from the rebound in oil prices. West Texas Intermediate started rising at Monday’s Asia open and climbed from $61.88/barrel to $66.72 in New York today. Broad U.S. dollar weakness and fading global growth concerns are driving the rally.
It is a slow news week, so the Kansas City Fed’s Jackson Hole Symposium and Fed chair Jerome Powell’s speech are getting an inordinate amount of attention. That’s because other Fed Chair’s have used this forum to announce major policy initiatives. Some analysts are anticipating that Powell will detail the Fed’s tapering plans.
That is not likely. Powell questioned the accuracy of the employment data and repeatedly said it was too early to remove stimulus. The latest outbreak of COVID-19 delta-variant is enough of an economic risk and supports leaving monetary policy unchanged.
There are not any top tier economic reports on tap today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
