- USD/CAD has been pressing lower in recent trade and recently went under 1.2650.
- Dollar weakness and strong loonie amid a risk on market tone and strong crude oil prices has driven the move.
USD/CAD continues to press lower and recently crossed below 1.2550, as bears target a move back to the 1.2500 level and then on to test recent multi-year lows in the 1.2460s. At present, USD/CAD trades lower by over 0.6% or about 80 pips on the session. On the week, that means the pair is now down 0.9% or nearly 120 pips; if USD/CAD closes at current levels, that would be the worst week for the pair since November.
Driving the day
The pair is primarily trading as a function of downbeat USD sentiment (the Dollar Index has dropped under 91.50 from earlier highs in the 91.80s) and comments from BoC Governor Lawrence Schembri do not seem to have impacted sentiment much. Meanwhile, the loonie also looks to have ignored comments from an expert panel that advises the government that Ontario might be facing a third Covid-19 wave amid the accelerated spread of new Covid-19 variants.
Traders have been selling the US dollar amid a lack of demand for safe-haven assets and flows into risk-sensitive assets (like CAD) after US President Joe Biden signed the $1.9T stimulus package into law one day earlier than expected, and as chatter regarding Biden’s next, infrastructure-focused stimulus package gains traction. Crude oil markets have been performing particularly well, which is helping the loonie to be one of the best performers in the G10.
Looking ahead, the loonie will take over as the main driver of USD/CAD direction on Friday amid the release of StatsCan’s highly anticipated February Labour Market Report; the Canadian economy is expected to have added 75K jobs on the month, enough to bring the unemployment rate back to 9.2% from 9.4% in January.
BoC’s Schembri speaks
Bank of Canada Deputy Governor Lawrence Schembri was on the wires on Thursday, making him the first BoC policymaker to speak in wake of the bank’s monetary policy decision on Wednesday. In his initial comments, he spent time talking about how Canadians have accumulated significant savings over the last year and how the speed at which they choose to spend this money will affect the economic recovery.
He also noted some of the downside risks faced by the Canadian economy, which include risks of another wave of Covid-19 infections, delays to the vaccine rollout or signs that vaccines are less effective than hoped, as well as the financial stress faced by businesses. Schembri noted the better performance of the Canadian economy in 2020 than the bank had forecasted and commented that, going forward, US fiscal stimulus would provide exports with a boost, but also noted that the labour market remains a long way from full recovery and that house price increases in some areas od the market warrant close monitoring.
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