Canadian Dollar Update, February 11, 2021 – Canadian dollar rallies anew
USD/CAD Open: 1.2677-81, Overnight Range: 1.2678-1.2709, Previous Close: 1.2701
WTI Oil is at $58.36 and gold is at $1,840.71. US markets are higher today.
For today, USD resistance is at 1.2709. Support is at 1.2657.
-Weekly Jobless Claims data due today
-Fed Chair Jerome Powell kicks reflation trade idea to curb
-US dollar trades quietly overnight
The Canadian dollar is tracking broad US dollar moves closely while getting a bit of a lift from steady to firm crude oil prices. USDCAD traders are not interested in domestic economic fundamentals. Instead, it is the US outlook that matters.
There has been a lot of chatter about the “reflation trade” recently.
The premise is that wide-spread COVID-19 vaccinations, combined with President Biden’s $1.9 trillion stimulus program would spark an economic boom and a surge in inflation, forcing the Fed to raise interest rates ahead of schedule.
Fed Chair Jerome Powell pushed back against that notion yesterday, in a speech to the Economic Club of New York.
He didn’t say anything new, and repeatedly the common refrain echoed by many of his FOMC colleagues. He said “we now explicitly seek to achieve inflation that averages 2 percent over time. This means that following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.” He also said that the Fed would not be forced to act because of full employment, saying “we will not tighten monetary policy solely in response to a strong labor market.”
In a nutshell, Mr. Powell re-affirmed that US interest rates will stay low for a prolonged period.
Nevertheless, Mr. Powell’s speech was enough to put a cap on rising US Treasury yields, which led to modest US dollar selling.
FX markets were extra quiet in Asia due to the onset of the week-long, Chinese New Year holiday. AUDUSD and NZDUSD recovered yesterday’s losses overnight, underpinned by broad US dollar weakness. AUDUSD got an added lift after the Treasury secretary said the economic recovery was more substantial than expected.
EURUSD traded sideways in a 1.2115-1.2135 range. Prices remained bid despite the EU commission downgrading 2021 GDP growth to 3.8% from 4.2%, blaming the pandemic for the change.
Germany will extend lockdown measures until March 7. EURUSD technicals are bullish above 1.2070.
USDCAD technicals are negative while prices are below 1.2730. Traders are looking for a decisive break below the 1.2630-1.2660 support zone to extend losses to 1.2550.
US weekly jobless claims are expected at 757,000.
Today’s Suggested Range USD/CAD: 1.2630 – 1.2730