Canadian Dollar Update, March 4, 2021 – Commodity Prices Underpin Canadian Dollar
USD/CAD Open: 1.2645-49, Overnight Range: 1.2634-1.2773, Previous Close: 1.2656
WTI Oil is at $64.39 and gold is at $1,697.60. US markets are lower today.
For today, USD resistance is at 1.2744. Support is at 1.2523.
• Global equity markets sink under weight of rising Treasury yields
• Market waiting for Powell’s speech at noon
• US dollar grinds higher, except against commodity currency bloc
The Canadian dollar traded has recovered “commodity currency” status. A broad-based rise in commodity prices has led some analysts to speculate about a new commodity “super-cycle.” Canada’s wealth of raw resources is contributing to the Loonie’s performance.
At the same time, the Canadian dollar is vulnerable to falling bond market prices. US 10-year Treasury yields climbed to 1.478% overnight as traders fear rising inflation. The higher Treasury yields have widened US interest differentials against other G-10 economies, fueling US dollar demand.
Bond traders are concerned that US inflation will spike higher because of existing and upcoming fiscal stimulus plans as reopening state economies unleash pent-up consumer demand. The Fed disagrees. The latest FOMC statement said that increases in inflation would be transitory and that high unemployment would necessitate accommodative monetary policy to “at least 2023.” A host of Fed officials have echoed that sentiment in the past few weeks.
Traders are keen to learn Fed Chair Powell’s thoughts to see if the latest spike in Treasury yields will change his outlook on the timing of the next interest rate increase.
FX markets were rangebound overnight, except for USDJPY, which decisively took out resistance in the 107.00 area and rallied to 107.38 due to expectations of even higher Treasury yields.
Wall Street closed with hefty losses, and global equity indices followed suit.
China’s Shanghai Shenzhen CSI 300 index dropped 3.15%, while the UK FTSE 100 leads European bourses lower.
S&P 500 futures suggest a weak open in New York.
Traders ignored a massive 21.56 million barrel increase in crude inventories. They are more focused on today’s OPEC and Russia meeting. There are rumours that the scheduled production increases will be delayed.
EURUSD traded in a 1.2029-1.2066 range. ECB Board Member Klaas Knot said higher yields reflected an improved growth outlook.
Traders ignored his remarks and Eurozone data (January Retail Sales -5.9%, Unemployment rate 8.1%).
GBPUSD consolidated recent losses in a 1.3918-1.3967 band. The UK budget was a non-event.
USDJPY broke above 107.00 touching 107.36, as prices tracked Treasury yields.
Traders are looking for a move above 107.50 for a test of 108.30.
AUDUSD traded choppily in a 0.7754-0.7815 range, and prices are in the middle of that band in NY. Modestly weaker January Retail Sales (actual 0.5% m/m vs forecast 0.5%) were offset by steady to firm iron ore prices. NZDUSD traded in a 0.7230-0.7270 range with prices weighed down by broad US dollar demand. RBNZ Governor Adrian Orr said that monetary policy needs to remain stimulative.
Today’s US data includes weekly jobless claims, which are forecast at 750,000.
Today’s Suggested Range USD/CAD: 1.2600 – 1.2700