Events in Washington drive dollar demand
Thursday 7 January, 2021
Daily Currency UpdateThe demand for the US dollar followed yesterday’s emotional rollercoaster, swinging up and down as the day’s political theater rolled out.
The US Dollar Index, which measures the value of USD against a basket of major currencies, spiked up nearly a whole percentage point on the early projections that Georgia’s senatorial race was coming to a close. However, in less than an hour, the demand fell as President Donald Trump’s supporters stormed the capital building. As security agents and inciters clashed amidst the violence, the index wallowed below 90 points.
As order was restored, and the vote to certify Joe Biden as President of the United States was approved in the early morning, the US Dollar Index peaked at 89.90 and reached its highest level in 2021.
For the first time in a decade Democrats control the White House, Senate and House of Representatives. Markets anticipate sustained USD weakness in the wake of these results. Increased COVID-19 aid within the US should help drive the global recovery and weaken the demand for USD a safe-haven currency.
Key MoversIn Europe, the European Medicines Agency has approved the use of the Moderna vaccine. While this is great news for Europe as it starts its vaccine program, the high cost of this vaccine has seen the lowest number of orders taken as a result.
It was another rollercoaster day for the Great British pound as it swung between close to GBPUSD 1.37 and mid-1.35. The UK reported over 1,000 virus deaths for the first time since early last year. Meanwhile, the Bank of England is set to soon release its publication on the viability of negative interest rates in the UK - a move which would dampen any prospects for the pound.
The Australian dollar continued its upward extension, pushing through 0.78 US cents on Wednesday amid broader US dollar weakness following yesterday’s events. As we look ahead our attentions now turn to the next point of psychological resistance; 0.80 US cents. With the Australian economy relatively free from the constraints of COVID-19 and positive sentiment continuing to outweigh near-term headwinds we would anticipate little in the way of resistance in chasing down this handle. While there is scope for a short-term reprieve on US dollar weakness, the downturn is still very much intact, and we expect sustained softness through the medium term allowing the AUD to extend gains through Q1.
- EUR/CAD: 1.558 - 1.564 ▲
- GBP/CAD: 1.720 - 1.729 ▼
- AUD/CAD: 0.983 - 0.989 ▲
- USD/CAD: 1.266 - 1.273 ▼