Canadian Dollar Update, December 29, 2021 – Canadian Dollar Adrift
USD/CAD Open: 1.2832, Overnight Range: 1.2772-1.2845, Previous Close: 1.2808
WTI Oil is at $76.68 and gold is at $1,802.30. US markets are mixed today.
For today, USD resistance is at 1.2796. Support is at 1.2761.
- Omicron concerns in focus in thin, holiday markets
- Month and year end flows add to FX volatility
- US dollar opens mixed to modestly firmer compared to last Thursday
The Canadian dollar traded sloppily on Monday, falling from 1.2845 to 1.2772 as most major FX centers, other than the US, were closed.
Tuesday saw slightly better liquidity and the Canadian dollar drifted lower as risk sentiment turned cautious.
The period between Christmas and New Year’s is well-known for poor liquidity due to holidays and occasionally sharp currency moves due to month and year-end flows. This year, like last year, also has an undercurrent of risk aversion due to the pandemic.
Omicron is front-page news worldwide. The highly transmissible variant threatens to overwhelm hospitals in many regions, and Canada is not unscathed. The US has broken its record for new cases, reporting the seven-day average at 267,000 on Tuesday. Europe and the UK Omicron outbreaks are even more severe.
However, there are many studies suggesting the Omicron variant is less severe than the Delta variant, and that is keeping risk sentiment mildly positive.
EURUSD is trading sideways in a 1.1274-1.1342 range, which has contained price action since December 23. Price action is determined by risk sentiment. Meanwhile, GBPUSD managed to rally on Christmas eve and then consolidate those gains in a 1.3362-1.3460 range.
The rebound in crude prices also supports the Canadian dollar. West Texas Intermediate (WTI) rallied from $66.11/barrel December 20 to $76.34/b today following reports that US crude inventories fell, supply disruptions, and hopes for increased demand in 2022.
The Canadian dollar is also garnering a modest benefit from forecasts that it will trade higher in 2022. Analysts are predicting that the Bank of Canada (BoC) will raise the overnight rate by 0.25% in April, which would be two months earlier than the Fed. Analysts also expect WTI prices to trade close to $100.00/b in early 2022, which also supports the firmer Canadian dollar view.
FX direction will be determined by month-end flows and Wall Street price action.
Today’s Suggested Range USD/CAD: 1.2750 – 1.2850