Canadian Dollar Update, January 21, 2021 – Canadian Dollar Busts a Move
USD/CAD Open: 1.2619-23, Overnight Range: 1.2588-1.2637
WTI Oil is at $53.05 and gold is at $1,865.40. US markets are higher today.
For today, USD resistance is at 1.2651. Support is at 1.2579.
• Loonie soars to a three year peak
• Bank of Canada expects robust domestic growth
• US dollar continues to slide lower
The Canadian dollar spiked higher yesterday and managed to hang on to the gains overnight. The currency pair had a lot of company, as a soaring New Zealand dollar led the major G-10 currencies in a broad rally. The weak US dollar stems from President Joe Biden’s plans for a $1.9 trillion Relief package, which improved risk-sentiment worldwide.
The Bank of Canada left interest rates unchanged. Some participants had expected a “micro-cut” which would have trimmed rates from 0.25% to 0.10%. Instead, they delivered an upbeat outlook for the economy in the second half of the year.
They upgraded GDP forecasts from the 4.6% y/y prediction in October to 5.2%. They also injected “tapering” into the monetary policy outlook. The statement said, “As the Governing Council gains confidence in the strength of the recovery, the pace of net purchases of Government of Canada bonds will be adjusted as required.” The prospect of tapering opens the door to policy normalization down the road, which means analysts will soon be forecasting rate hikes.
BoC Governor acknowledged the negative-short-term risks to the economy from the latest COVID-19 measures implemented in Ontario, Quebec, and other regions. He said, “the current surge of COVID-19 is a serious setback. With elevated infection rates and stricter containment measures in many parts of the country, households and businesses are facing renewed strains. The economy is slowing, and high-contact activities are once again being hit hardest.”
He wasn’t all doom and gloom. He is optimistic about growth later this year saying, “with effective vaccines now rolling out, the prospects for a strong, sustained recovery through the second half of this year have improved in Canada and across most advanced economies.”
USDCAD plunged from 1.2675 to 1.2608 on the news. The intraday and short -term technicals outlook is bearish. A break of minor support at 1.2605 will extend losses to 1.2500 (US 80.00 cents =1 Canadian dollar).
Elsewhere, the European Central Bank meeting is today. Analysts do not expect any change in policy but are keen to learn if ECB President Christine Lagarde downgrades her optimistic outlook due to the latest COVID-19 outbreaks in Europe.
There is a lot of US economic data today including, Philadelphia Fed Manufacturing Index, Initial Jobless Claims, Building Permits, and Housing Starts.
Today’s Suggested Range USD/CAD: 1.2570 – 1.2670