Daily Currency Update

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Canadian dollar pairs back gains

CAD - Canadian Dollar

Demand for the US dollar rebounded this morning and pushed USDCAD higher.

Last week, CAD started the week with strong gains on Tuesday. The USDCAD pair hit a 33-month low and it traded at 1.25892 last Thursday. That’s the strongest level for CAD since April 2018. Initial comments by Bank of Canada Governor Tiff Macklem said the Bank of Canada may not need as much stimulus overtime under the bank’s base case scenario. However, he also said, a weaker dollar may mean a looser Canadian monetary policy, which weighed on the Loonie and pared gains in intraday trading. The Loonie versus the US dollar ended last week giving up all its gains; it was among the worst performers among the Group-of-10.

Key Movers

We expect the euro to remain range bound as the market theme remains relatively consistent. With near term pressure on the USD there is some scope for euro upside, however we believe the single currency will struggle to push back toward December highs above 1.23. Growth across Europe continues to lag the US and with lock downs across the continent likely to be extended there is little hope the Eurozone will see any near-term relief of growth concerns. Further divergence in expectations could see the Euro soften through Q2 and into the end of H1.

The GBP remains supported by the ongoing risk narrative; however recent data sets suggest the economy has been hit heavily by the third lockdown. December retails sales and January PMI’s both fell short of expectations and out expectations turn to unemployment and weekly earnings data Tuesday for a better insight into broader economic health. COVID has brought the UK health system to its knees and further evidence the economy is faltering could prompt a swift correction for Sterling. With restrictions now expected to be in place until the European summer the pound remains increasingly vulnerable to swings in risk demand.

The Australian dollar crept lower through trade on Friday, yet still held onto gains above 0.77 US cents as risk assets remain elevated. Sentiment skewed to the upside last week as the promise of ongoing US fiscal stimulus, no major changes in tax policy and a commitment to QE from the Fed all helped support the risk backdrop and promote expectations for a medium-term recovery. Having faltered on approach to 0.7780 the AUD found support on moves approaching 0.7705 edging marginally higher in to the close to open the week at 0.7720 US cents.

Expected Ranges

EUR/CAD: 1.543 - 1.549 ▼

GBP/CAD: 1.738 - 1.743 ▼

AUD/CAD: 0.981 - 0.983 ▲

USD/CAD: 1.268 - 1.276 ▼