Canadian Dollar Update, January 18, 2022 – Canadian Dollar Supported by Oil
USD/CAD Open: 1.2514-18, Overnight Range: 1.2488-1.2532, Previous Close: 1.2518
WTI Oil is at $85.85 and gold is at $1,813.80. US markets are lower today.
For today, USD resistance is at 1.2565. Support is at 1.2454.
- Rising Treasury yields sour risk sentiment
- Oil prices rise on Middle East tensions
- CAD outperforms in face of renewed US dollar demand
The Canadian dollar is rangebound but still outperformed against the commodity currency bloc overnight. An upbeat Bank of Canada Business Outlook Survey (BOS) and another jump in crude prices combined to boost the local currency.
The BOS, released Monday, showed Canadian businesses had a positive outlook for the economy. The BOS Indicator, a summary measure of the survey questions, rose to 5.99 from 4.86 in the previous survey. Respondents suggested that the labour market was tightening, supply chain disruptions were a problem, and inflation expectations were elevated.
The BoC will pay close attention to the inflation outlook and wage pressure issues, raising the odds for a 0.25% rate hike at next week’s monetary policy meeting.
Oil prices surged overnight. West Texas Intermediate jumped to $85.72/barrel from $84.14/b at Monday’s close due to elevated geopolitical tensions. Yesterday, Yemeni Houthi’s used drones to attack Saudi-coalition partner United Arab Emirates (UAE) and struck targets near the Abu Dhabi international airport. The Houthis are widely believed to be directed by Iran, and analysts fear further tensions.
Oil prices are also underpinned by questions as to whether increasing global demand for crude will overwhelm Opec’s ability to increase production, resulting in even higher prices. The answers may be found in the monthly Opec Oil Market Report which is released today.
The US 10-year Treasury yield jumped to 1.852% in Asia, which sparked a broad “risk-off” move in equities and USD dollar demand. Asia equities closed with losses, and European equity indexes followed suit. Wall Street is poised to open in negative territory, although S&P 500 futures are clawing back some overnight losses. Gold prices slumped in the face of higher US rates.
EURUSD traded with a negative bias in a 1.1446-1.1505 band. The sharp rise in US Treasury yields drove prices lower, despite better than expected Eurozone and German ZEW economic sentiment data. Domestic data is taking a back seat to the US interest rate outlook, especially as ECB officials insist domestic rates will remain unchanged.
GBPUSD is at the bottom of its 1.3583-1.3660 range due to risk-off sentiment, with traders ignoring better than expected UK employment data.
USDJPY traded in a 114.46-115.05 range. The BoJ surprised no one and left monetary policy unchanged. BoJ Governor Haruhiko Kuroda said, “We are not thinking at all about raising interest rates or changing the current accommodative policy.”
The US and Canadian economic calendars are empty.
Today’s Suggested Range USD/CAD: 1.2470 – 1.2570