Daily Currency Update

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Record improvement in business conditions

CAD - Canadian Dollar

A survey of about 400 purchasing managers reached record improvements in Canadian business conditions during the month of December.

The Purchasing Managers’ Index, or PMI, reached 57.9 and represented sharp expansions in new orders and output. Sustained increases in manufacturing workloads contributed to capacity pressures and another round of job creation.

The positive note muted typical risk sentiment associated with equity market selloffs and allowed the demand for CAD to outpace that of USD. USDCAD was range bound, trading between 1.278 and 1.274.

Key Movers

Looking towards Europe, the vaccine rollout has been somewhat muted. However, the data and gains from the euro tell a different story. If the US dollar struggled last year, the euro is partly to blame. Yesterday we saw Eurozone manufacturing activity, a sector critical to the continent, expand at its fastest rate since May 2018 and the euro followed suit. GBPEUR sold off throughout the day but the euro also surged against USD.

The positive tone that the pound started the year with was lost yesterday afternoon after Prime Minister Boris Johnson planned fresh lockdown measures. Despite this, data out from the UK was positive and will be very important over the next few months. First, UK Manufacturing PMIs beat expectations and reached highs not seen since November 2017. Factories rushed orders in December in the fear of a No-Deal Brexit. On top of this, mortgage approvals for November reached 105,000, the highest figure for that month since the GFC. The big question for this quarter is whether a sufficient rollout of the vaccine can support any economic recovery. If that's the case, can we see GBPUSD return to its glory days of 1.40?

The first trading session of the year prompted whippy trade and price action as the AUD failed to hang onto gains above 0.77 US cents. Spurred by a positive undercurrent of risk demand the AUD rallied through the domestic session to touch intraday highs at 0.7740, marginally short of last week’s 21-month high. With the USD under pressure, the AUD appeared set for a challenge above resistance at 0.7750 and an assault on 0.78 US cents before profit taking and a souring in risk sentiment prompted a shift in fortunes. Markets unwound gains overnight, forcing the AUD back below 0.77 and 0.7650 as mounting COVD-19 case numbers, vaccine rollout concerns and the upcoming Georgia Senate run off spooked investors.

Expected Ranges

EUR/CAD: 1.561 - 1.567 ▲

GBP/CAD: 1.728 - 1.735 ▲

AUD/CAD: 0.978 - 0.985 ▼

USD/CAD: 1.271 - 1.279 ▲