- CAD Breaking Resistance barriers
- European stocks mixed to negative while US equity futures modestly higher
- US dollar extends losses
USDCAD Snapshot: Open 1.2480-84, Overnight Range-1.2468-1.2508, previous close 1.2508, WTI open $82.64, Gold open $1822.80
The Canadian dollar is chewing through multiple resistance barriers as traders dump stale, long US dollar positions against the major G-10 currencies. The New Zealand Dollar and Australian dollars are the best performing currencies following yesterday’s US inflation report.
US December CPI rose 7.0% y/y, which was expected, and the greenback fell under a wave of profit-taking selling. The Canadian dollar went along for the ride, getting an added boost from rising oil prices.
West Texas Intermediate (WTI) rallied from $77.95/barrel on Monday to $82.91/b overnight in a move fueled by sharply declining US crude inventories and aggressive price forecasts for 2022 and 2023. Wednesday, the Energy Information Administration (EIA) reported crude stocks fell by 4.553 million barrels in the week ending January 7. The EIA also predicted higher crude prices and rising demand in 2022. JP Morgan analysts are forecast WTI will reach $125.00/b in 2022 and $150.00/b in 2023, mainly due to declining spare capacity within Opec.
USDCAD started the week peaking at 1.2655 and dropped relentlessly, taking out 100 and 200-day moving average supports, as well as the critical 1.2500 (CAD 80 cent) level. Prices are looking for a test of the June 2021 uptrend line, at 1.2640 as a decisive breach opens the door to 1.2000.
The Canadian dollar is also undermined by speculation the Bank of Canada jumps ahead of the Fed and raises interest rates by 0.25% at the January 26 monetary policy meeting. Some analysts think it will happen due to the strong labour market. Canada has gained new jobs for six months in a row which, alongside other robust economic data suggests the output gap is closing faster than expected. Those analysts are predicting five rate hikes in 2022. If correct, it would take the overnight rate to 1.50% by year end.
The Canadian dollar is not the only currency enjoying a resurgence. EURUSD climbed from 1.1270 at the beginning of the month to 1.1477 overnight with a break of 1.1520 targeting 1.1750. EURUSD got a bit of support today after ECB policymaker Luis de Guindos suggested that inflation may not be as transitory as forecast.
GBPUSD rallied to 1.3748 from 1.3708 due to broad US dollar weakness. Traders are ignoring Prime Minister Johnson’s political woes and ongoing Brexit issues.
The antipodean currencies rallied on the improved risk tone and higher commodity prices.
US weekly jobless claims and the PPI index are ahead.
