- Global risk sentiment improves as Omicron variant fears fade
- GBPUSD slumps on fears of new COVID-19 restrictions in UK
- BoC meeting ahead
USDCAD Snapshot Open 1.2675-79, Overnight Range 1.2652-1.2692, Previous close 1.2652, WTI open $72.13, Gold open $1783.08
The Canadian dollar rallied ahead of the Bank of Canada (BoC) meeting yesterday but quickly erased the gains following the statement. The BoC left the policy rate unchanged and didn’t offer any new insight in the statement.
By and large, the BoC statement was relatively upbeat. It said that “Canada’s economy grew by about 5½ percent in the third quarter, as expected,” noting that the economy had considerable momentum going into the fourth quarter. The statement said “employment rate essentially back to its pre-pandemic level. Job vacancies remain elevated and wage growth has also picked up.”
It also acknowledged that inflation is “elevated” and that “the impact of global supply constraints is feeding through to a broader range of goods prices. The effects of these constraints on prices will likely take some time to work their way through, given existing supply backlogs.”
Traders were well aware of the above observations, which is why they sold USDCAD ahead of the meeting. They expected the BoC would react to the economic growth, employment, and inflation gains, by suggesting interest rates would rise sooner than expected.
It didn’t happen. Instead, the BoC used the BC flooding and the Omicron variant outbreak as an excuse to sit on the sidelines.
USDCAD rallied from 1.2608 to 1.2666 following the statement, than extended those gains to 1.2692 overnight. A break above resistance at 1.2710 targets 1.2850.
GBPUSD is having another bad day. The currency began to slide in November as traders downgraded expectations that the Bank of England would raise interest rates at next week’s meeting. The slide accelerated with the spread of the Omicron-variant. The UK government imposed Plan B coronavirus restrictions yesterday, which include mandating masks to be worn in all large venues and work from home guidelines. There is an undercurrent of political uncertainty weighing on prices. The Prime Minister's office held a Christmas party that violated existing COVID-19 protocols; then staff mocked the rules. A Savanta Comres poll shows 54% of the public want PM Boris Johnson to resign.
EURUSD is trading with a negative bias, sliding to 1.1336 from 1.1380. A Reuters report claims the ECB discussed increasing the Asset Purchase Program, which suggests lower rates for longer.
US weekly jobless claims are expected to be 215,000 compared to 225,000 last week.
