Canadian Dollar Update, February 1, 2022 – Canadian Dollar Takes a Turn for the Better
USD/CAD Open: 1.2674-78, Overnight Range: 1.2657-1.2721, Previous Close: 1.2707
WTI Oil is at $88.36 and gold is at $1,801.20. US markets are higher today.
For today, USD resistance is at 1.2698. Support is at 1.2675.
- Chinese New Years begins sapping Asia liquidity
- Eurozone GDP show minimal impact from Omicron
- Canadian dollar trading sideways
The Canadian dollar started the new month on a positive note. USDCAD dropped from 1.2721 in thin Asian markets and continued to drop in to the New York open due to a broad, post-month-end US dollar retreat.
The Canadian dollar derived some support from steady to higher oil prices. West Texas Intermediate rallied yesterday and consolidated those gains in an $87.06-$88.54 range, close to a seven-year peak. Goldman Sachs analysts suggest that Opec will consider increasing supply above the 400,000 barrel/per day scheduled, but that may be wishful thinking. Prices are underpinned by speculation that US crude inventories increased in the week ending January 28, in addition to supply concerns from elevated geopolitical tensions.
Canada’s GDP is expected to show that the economy grew 0.3% in November, well below October’s 0.8% increase. However, the data will be ignored as the poor showing is likely due to the BC floods that disrupted road and rail traffic.
Canadian dollar direction is determined by the US interest rate outlook and broad US dollar sentiment. Yesterday, several Fed officials reinforced the outlook for higher rates. Kansas City Fed President Esther George said that monetary policy is out of sync with the economic outlook. Atlanta Fed President Raphael Bostic downplayed the risk of a 0.50% hike saying it wasn’t his preferred action and Richmond President Fred Barkin seemed to agree.
The Bank of Canada is also raising rates in 2022, with many analysts predicting five 0.25% hikes. That outlook may help limit Canadian dollar losses.
The Reserve Bank of Australia adopted a different tact. They announced the end of QE at Tuesday’s meeting, which was no surprise. They also said “ceasing purchases under the bond purchase program does not imply a near term increase in interest rates.” AUDUSD fell on the news but recovered all the losses on the back of broad US dollar weakness.
EURUSD rallied yesterday after month-end rebalancing flows were completed and consolidated those gains in a 1.1222-1.1278 range. Prices received additional support from modestly better than expected Eurozone PMI and employment data.
GBPUSD rallied on broad US dollar weakness, rising from 1.3436 to 1.3513.
US data includes ISM Manufacturing PMI and JOLTS.
Today’s Suggested Range USD/CAD: 1.2630 – 1.2730