Canadian Dollar Update, January 14, 2021 – Canadian Dollar Hangs on to Gains
USD/CAD Open: 1.2671-75, Overnight Range: 1.2645-1.2707
WTI Oil is at $52.68 and gold is at $1,848.90. US markets are higher today.
For today, USD resistance is at 1.2721. Support is at 1.2596.
• Fed Chair Powell speech today
• Biden announces stimulus plan details tonight
• US dollar weighed down by commodity currency bloc gains
The Canadian dollar inched higher overnight, following on the heels of AUDUSD and NZDUSD gains. The move was sparked when China announced a surge in their trade surplus, fueled by an 18.1% increase in exports. The data suggests that China has put the coronavirus crisis behind them, and the economy is expanding. Canadian dollar gains lagged the Antipodean currencies, despite firm crude oil prices.
USDCAD dropped during the week before Christmas and found a bottom in the 1.2630 area in the first week of trading in 2021. The drop occurred in thin year-end markets, and is likely not warranted by domestic fundamentals. Sure, WTI oil prices rallied, by Canada’s main export, Western Canada Select, (WCS) is trading at a 12.90 discount. The 365 day average discount is $11.43/barrel. Canada’s budget deficit has ballooned to the $400 billion area, while the domestic economy remains weak. The latest COVID-19 outbreak led to curfews in Montreal and “stay at home” orders in Ontario. It is extremely hard to justify the current USDCAD rate.
The Canadian dollar is underpinned by expectations of further US dollar weakness after Joe Biden details his stimulus plans. The significant items are well-known, which is behind the recent US dollar retreat. Arguably, markets could react by “buying the news, after selling the rumour.”
EURUSD tried to break support at 1.2140 but failed. Prices zig-zagged in a 1.2137-1.2171 range. Italian politics provided a distraction, after a junior partner pulled out of Prime Minister Conte’s coalition, in a dispute over EU funds. Traders ignored German GDP data which showed GDP shrinking 5.0% in 2020. Traders are looking ahead to this morning’s US Jobless claims report and Biden’s speech. The intraday technicals are bearish below 1.2190, looking for a break below the 1.2120-40 area to extend losses to 1.2000.
GBPUSD is consolidating recent gains in a 1.3600-1.3700 range. Some analysts believe that with Brexit put to bed, foreign investors are jumping back into UK assets, which is underpinning the currency. Others, including the Bank of England, are concerned about the negative impact on the economy from the latest COVID-19 outbreak, and measures to contain it. The intraday technicals are bullish above 1.3630, looking for a retest of 1.3700.
US Jobless Claims and Trade data are released today.
Today’s Suggested Range USD/CAD: 1.2620 – 1.2720