Canadian Dollar Update, February 26, 2021 – Canadian Dollar Rally Hits Wall
USD/CAD Open: 1.2646-50, Overnight Range: 1.2589-1.2648, Previous Close: 1.2605
WTI Oil is at $63.07 and gold is at $1,765.02. US markets are mixed today.
For today, USD resistance is at 1.2775. Support is at 1.2670.
-Fed Chair Powell drives positive risk sentiment
-Traders (mostly) ignore surge in Treasury yields
-US dollar sinks against G-10 majors
The Canadian dollar went splat. Yesterday USDCAD was in free-fall, dropping from 1.2597 to 1.2468, and looking like it had further to fall. It didn’t.
A mini-“taper tantrum”, reminiscent of what occurred in mid-2013 when Fed Chair Ben Bernanke opened the door to the Fed tapering quantitative easing bond purchases. Treasury yields spiked, and equity markets crashed. That’s what occurred yesterday.
Treasury yields started climbing at the beginning of the year, rising steadily from 0.914% on January 4. They appeared to have peaked in the 1.12% area in the first week of February. President Biden’s $1.9 trillion COVID-19 Relief program sparked fears that the stimulus spending would trigger a surge in inflation, which ultimately would force the Fed to raise interest rates way ahead of schedule.
That was not the message the Fed wanted to hear, and the policymakers pushed back.
Nevertheless, Treasury yields continued to grind higher, reaching 1.36% ahead of Fed Chair Jerome Powell’s semi-annual Congressional testimony. Mr. Powell reiterated that there were serious downside risks to the US economic outlook, particularly that the employment situation was worse than reflected in the data. He spent a lot of time explaining why the Fed would not immediately react to falling unemployment rates or higher inflation. That same day Vice Chair Richard Clarida reminded markets that the January Summary of Economic projections did not forecast a rate hike until 2023.
The remarks did not ease bond market concerns. Thursday, better than expected US jobless Claims and Durable Goods Orders data suggested the US economic recovery was robust. Also, the Fed’s seven-year Treasury auction did not fare very well. Treasury yields surged and reached 1.535%, and equity markets collapsed. The Nasdaq led the major indexes lower, losing 3.5.
The US dollar soared, and the Canadian dollar was collateral damage.
USDCAD soared from 1.2468 and soared to 1.2650, then extended those gains overnight and touched 1.2683.
Further gains may be limited to 1.2730, which is resistance from the April 2020 downtrend. Prices will also get a bit of support from oil prices as WTI oil prices are above $60.00/barrel.
US Chicago Purchasing Managers PMI and Michigan Consumer Sentiment reports are on tap. Equity markets and Treasury yields will dictate FX direction.
Today’s Suggested Range USD/CAD: 1.2640 – 1.2740