Canadian Dollar Update, February 17, 2021 – Canadian dollar near a three year peak
USD/CAD Open: 1.2697-1.2701, Overnight Range: 1.2689-1.2717, Previous Close: 1.2692
WTI Oil is at $61.76 and gold is at $1,782.10. US markets are mixed today.
For today, USD resistance is at 1.2722. Support is at 1.2668.
-Canadian dollar slips, but still firmer this week
-Asia markets are subdued because of Chinese New Year holidays
-Bitcoin posting new record highs
The Canadian dollar was soaring yesterday morning until a surge in US Treasury yields knocked it back to earth. USDCAD touched 1.2612 Tuesday, then sharply reversed course and climbed to 1.2700 at the same time as 10-year US Treasury yields were trading at 1.30%.
Treasury traders disagree with the Fed’s assertion that they will not increase interest rates because of rising inflation rates. The Fed has gone to great lengths to maintain control of the narrative. Last August they modified their inflation mandate from a fixed 2% target to a fluid inflation range around 2%. That meant they did not need to react if inflation reached their target level.
More recently, the Fed has said that they do not believe the current employment data is a true reflection of the American employment situation. Fed Chair Powell and others think the unemployment level is closer to 10%.
The Fed’s inflation level tweak and their concerns about the employment level provide them with justification for allowing the economy to run “hot” which is what they are planning.
The minutes of the January 27 FOMC meeting are released this afternoon.
The FOMC monetary policy statement didn’t offer any surprises, so the minutes will likely have a similar result.
US January Retail Sales are forecast to rise 1.0%. The numbers could be higher because of weak December results (-0.7% m/m).
Canadian dollar traders will be awaiting Canadian inflation numbers. Canada CPI is expected at 0.4% m/m (December -0.2%) and 0.8% y/y.
The Canadian dollar is getting support from steady to firm oil prices.
The massive winter storm that engulfed a large part of the US also knocked out one-third of the US oil production, which lifted WTI oil to 61.76/barrel.
EURUSD broke above key resistance in the 1.2150-1.2160 area yesterday and then tumbled when US 10-year Treasury yields soared. Prices dropped to 1.2058 in NY trading. Selling of EURGBP weighed on prices as the UK’s COVID-19 vaccination program seriously out-paced that of the European Union. Nevertheless, EURUSD technicals are bullish above the 1.2050 area.
GBPUSD has retraced over 50% of Friday’s gains on the back of surging Treasury yields, and broad US dollar strength. UK inflation rose 0.7% in January, as expected. US Treasury yields and Wall Street price action will drive FX markets until the FOMC minutes are released.
Today’s Suggested Range USD/CAD: 1.2650 – 1.2750