Canadian Dollar Update, February 7, 2022 – Canadian Dollar Struggling for Direction
USD/CAD Open: 1.2733-37, Overnight Range: 1.2711-1.2755, Previous Close: 1.2765
WTI Oil is at $91.31 and gold is at $1,819.40. US markets are lower today.
For today, USD resistance is at 1.2720. Support is at 1.2650.
- WTI oil jumps 5.8% since yesterday
- EURUSD soars on ECB hawkish flip
- US dollar opens mixed; EUR outperforms
The Canadian dollar is struggling to find direction. USDCAD bounced in a 1.2650-1.2787 range last week, torn between the risk of sharply higher US interest rates and soaring oil prices. It may see a similar performance this week, albeit with an upward bias to USDCAD.
Traders turned their attention to Europe after ECB President Christine Lagarde’s press conference on Thursday. The central bank chief morphed from dovish to hawkish, catching the market off guard and wrong-footed.
Traders were short EURUSD going into the meeting and even the ECB policy statement indicated it was the right way direction.
That changed when Ms Lagarde indicated she was concerned about inflation. She said “it might very well be significantly higher than what we had expected over the course of the year and possibly higher than we had anticipated at the end of the year. So risk is to the upside in particular in the near term.”
Those words had traders scrambling to cover their short positions and analysts revising their ECB interest rate forecasts. Many economists expect the first rate hike in the last quarter of 2022. Dutch Central Bank President Klaas Knot agreed. On Sunday, he said, “Personally I expect our first rate increase to take place around the fourth quarter of this year. Normally we would raise rates by a quarter percentage point, I have no reason to expect we would take a different step.”
The news sideswiped the Canadian dollar due to a rash of EURCAD buying.
However, surging oil prices serve to slow Canadian dollar losses. West Texas Intermediate (WTI) peaked around $93.02/barrel Friday, and prices consolidated overnight in a $90.76-$92.69/barrel range. Crude prices are supported by news that Saudi Arabia increased its oil price to all customers starting March and by speculation that Opec production will not keep up with demand in the first part of the year.
Canadian dollar losses are also slowed due to expectations the Bank of Canada will raise rates as aggressively as the Fed as Canadian inflation levels climb.
There are no major data releases from Canada or the US today, leaving FX direction dictated by US Treasury yields. The 10 year Treasury yield is trading above 1.90% in NY.
Today’s Suggested Range USD/CAD: 1.2650 – 1.2750