Canadian Dollar Update, December 16, 2020 – Canadian Dollar out of Step
USD/CAD Open: 1.2748-52, Overnight Range: 1.2693-1.2764
WTI Oil is at $47.45 and gold is at $1,859.50. US markets are higher today.
For today, USD resistance is at 1.2786. Support is at 1.2723.
• Chance of Brexit deal pegged at 75%
• FOMC meeting and updated forecasts due today
• Canadian dollar underperforms
The Canadian dollar is marching to the beat of its own drummer. The Loonie is the worst performing G-10 currency since yesterday’s close, losing 0.41% against the US dollar. The other G-10 majors gained, led by a 0.52% jump in GBPUSD.
Canadian dollar direction was determined by broad US dollar sentiment and direction for the past many months. That changed overnight. Other currencies were in demand, but not the Loonie. USDCAD closed at 1.2699, and climbed steadily until hitting resistance in the 1.2750 area, where it sits in early Toronto trading.
It is rare for USDCAD to trade against the grain. The rally could be due to the execution of a large order to buy USDCAD, perhaps for year-end positioning. It has happened many times before. There is also talk that the gains were due to GBPCAD and EURCAD demand alongside CADJPY selling pressures, with those flows occurring in relatively thin FX markets.
Bank of Canada Governor Tiff Macklem may have played a role. During the Q&A period following a speech to the Vancouver Board of Trade, the governor answered a question about the currency saying “We do not target the exchange rate. The exchange rate is set by the market.” The significance of that statement is that it is a variation of similar statements made by Fed Chair Jerome Powell, ECB President Christine Lagarde, and Bank of England Governor Andrew Bailey. If the exchange rate is not targeted, why is it suddenly a discussion point for central bankers? “The lady doth protest to much, methinks.”
GBPUSD continued its rally, rising from 1.3436 to 1.3545 in Toronto today. Traders jumped all over a comment by EU Commission President Ursula von der Leyden. She said “I can not tell you whether there will be a deal or not but I can tell you there is a path to an agreement now. The path may be very narrow, but it is there.” British bookmakers pegged the odds of a deal at 1:4, meaning to win a pound, you need to bet four.
EURUSD cracked above 1.2200, a level last seen in April 2018. The rally was fueled by broad-based US dollar selling from “risk-on” sentiment, expectations for another dovish FOMC meeting, and better than expected Markit PMI data from Germany and the Eurozone. Eurozone Manufacturing PMI was 55.5 (forecast 53), and German Manufacturing PMI jumped to 58.6 from 57.8 in November. The chief economist at Markit said that “the data hint at the economy close to stabilizing after having plunged back into a severe decline in November amid renewed Covid-19 lockdown measures.”
Canada CPI is expected to be 0% m/m in November, and 0.8% y/y and US Retail Sales (forecast -0.3%).
Today’s Suggested Range USD/CAD: 1.2700 – 1.2800