Canadian Dollar Update, January 31, 2022 – Canadian Dollar Choppy from Month-end Flows
USD/CAD Open: 1.2738-42, Overnight Range: 1.2722-1.2775, Previous Close: 1.2767
WTI Oil is at $87.29 and gold is at $1,798.30. US markets are higher today.
For today, USD resistance is at 1.2756. Support is at 1.2647.
- Chinese New Years begins sapping Asia liquidity
- Eurozone GDP show minimal impact from Omicron
- Canadian dollar trading sideways
The Canadian dollar is ending the month almost unchanged compared to where it opened on January 4. USDCAD started the year on January 4 at 1.2748 and today opened at 1.2740. But that doesn’t tell the story.
The Canadian dollar rallied for the first two weeks, consolidated gains for the next week, and then dropped in the month’s final week. Canadian dollar strength was fueled by oil price gains and anticipation for a hawkish Bank of Canada monetary policy meeting outcome, including a 0.25% rate hike. It didn’t happen. Then escalating geopolitical tensions as Russia threatened Ukraine and Houthi rebels firing missiles into the UAE sparked a shift into safe-haven currencies, giving the US dollar a lift.
The Bank of Canada surprised many analysts and left interest rates unchanged, sparking a short-covering USDCAD rally. Things worsened when the Fed Chair Jerome Powell delivered a more hawkish than expected interest rate outlook, which sank global equities and fueled another bout of risk-off trading.
That takes us to today, where the Canadian dollar extends last week’s slide toward major support, as month-end portfolio rebalancing flows drive USDCAD demand.
Canadian dollar losses are being tempered by West Texas Intermediate (WTI) oil prices which remain at elevated levels. WTI climbed to $88.13/barrel from $86.84/b due to more missiles being fired into the UAE by Houthi rebels and escalating concerns about oil supply disruptions from Russia.
EURUSD traded in a 1.1139-1.1182 ahead of Thursday’s ECB monetary policy meeting, with traders ignoring Eurozone Q4 GDP (actual 4.6% y/y vs forecast 4.7%).
GBPUSD rallied from 1.3389 to 1.3447 before dropping to 1.3420 due to EURGBP selling. A BoE rate hike on Thursday is reflected in the rate, limiting GBPUSD support.
USDJPY is underpinned by higher US Treasury yields and traded in a 115.23-115.58 band. Gains are slowed by safe-haven demand for yen.
AUDUSD rallied from 0.6986 to 0.7057 on speculation that RBA policy will flip to hawkish due to rising inflation and employment. NZDUSD lagged the AUDUSD move.
Today’s US data includes Chicago PMI index.
Today’s Suggested Range USD/CAD: 1.2650 – 1.2750