Canadian Dollar Update, May 18, 2021 – Canadian Dollar Soars
USD/CAD Open: 1.2033-37, Overnight Range: 1.2015-1.2072, Previous Close: 1.2069
WTI Oil is at $65.39 and gold is at $1,868.00. US markets are mixed today.
For today, USD resistance is at 1.2138. Support is at 1.2105.
• US dollar sinks as rate hike fears dissipate
• UK employment data lifts GBP
• US dollar opens with losses due to positive risk sentiment
The Canadian dollar soared overnight. It had a lot of company. Traders embraced the outlook for a very robust global economic recovery occurring in a low interest rate environment. The US dollar sank, global equity markets climbed, commodity prices rose, while US 10-year Treasury yields stagnated around 1.64%.
Fed officials continue to push back against concerns that they will be forced to raise interest rates ahead of schedule due to rising inflation. Yesterday, Atlanta Fed President Raphael Bostic repeated the Fed mantra that monetary policy needs to stay accommodative because “We are still 8 million jobs short of where we were pre-pandemic. Until we make substantial progress to close that gap, I think we’ve got to have our policies in a very strongly accommodative situation or stance.” He added, “now is not the time where we have to consider moving.”
Richmond Fed President Thomas Barkin said that higher inflation partly reflected pent up demand but that long term disinflationary forces would help curb inflation expectations.
Those comments and a slew of similar statements from other FOMC members seem to have convinced market participants that the Fed will ignore inflation spikes and not raise interest rates, giving the green light to rally stocks.
EURUSD rallied from 1.2152 to 1.2253 in a flurry of “risk-on” demand. Prices broke above resistance at 1.2180 and are now looking to break above 1.2250 to extend gains to 1.2360. EURUSD got an added lift because the Eurozone and US real-inflation differential favours the euro. ECB President Christine Lagarde speaks later today and may provide some verbal intervention as a rising EURUSD may slow the Eurozone recovery.
GBPUSD climbed steadily overnight and got an added lift from the employment report. UK unemployment fell to 4.8% in the three months ending in March, down from 4.9% and 0.3% better than the previous quarter. However, analysts caution reading too much into the report as the furlough scheme has skewed the results. GBPUSD traders are looking for a break above 1.4250 to extend gains to 1.4330.
USDJPY slipped to 108.86 from 109.28 due to widespread US dollar selling and soft treasury yields. Japan Q1 GDP was worse than expected due to the impact of COVID-19 restrictions.
AUDUSD rallied from 0.7765 to 0.7812 due to higher commodity prices and improved risk sentiment. The minutes from the May 4 RBA monetary policy meeting did not have any impact on FX.
The Canadian economic data calendar is empty. US data includes Building Permits and Housing Starts.
Today’s Suggested Range USD/CAD: 1.1990 – 1.2090