USD/CAD consolidates around 1.2650 ahead of Biden stimulus announcement

• USD/CAD has flatlined in recent trade around 1.2650 amid a lack of fresh fundamental catalysts.
• Market participants await to hear what stimulus package incoming US President Biden will pursue, though details have been leaked.

USD/CAD has flatlined in recent trade around 1.2650 amid a lack of fresh fundamental catalysts as market participants await to hear what kind of stimulus package incoming US President Joe Biden will push for once he gets into office, though many details have now been released.

The pair closed Thursday FX trade with 50 pip losses on the day, having dropped from highs around the 1.2700 mark in the lead up too and during comments from the Chairman of the Federal Reserve Jerome Powell, who largely stuck to the usual dovish script on Fed policy and on the topic of asset purchase programme tapering, pushed back against the notion that this is going to happen, or indeed should be talked about, soon.

Soft weekly jobless claims data out of the US might have also contributed to weakness in the currency; in the week ending on the 9 January, 965K American signed up for unemployment insurance, a significant spike from the week prior’s 784K reading and well above expectations for 795K. The numbers show that after a rough December for the US labour market (as indicated in last week’s official NFP report), weakness has spilled over to January, which is unsurprising given the rate at which Covid-19 is spreading in the country is yet to relent and many industries (namely hospitality and leisure) are still locked down.

On the loonie and its recent outperformance, TD Securities explain that export-oriented economies, such as those in Asia, “that are goods-intensive have tended to see their currencies outperform… CAD is getting pulled along for the ride.”

Biden stimulus plan

Much of the details of this plan have already been leaked. Reuters recently reported that Biden is calling for a $1.9T Covid-19 rescue package, which will include more than $400B to directly bolster the Covid-19 response, $1T in direct relief for household and $440B for businesses and the most-affected communities.

Biden is calling to top up the latest $600 in direct stimulus payments by a further $1400 and also wants to raise the supplemental unemployment benefit to $400 per week from its current $300 per week levels, as well as extending the payments until December. Biden is also calling for a $15/hour minimum wage to be implemented.

USD/CAD continues lower within bearish trend channel

USD/CAD continues to move lower within a bearish trend channel; to the downside, the downtrend that has been acting as support links the 8 October, 9 November and mid-December lows. To the upside, the downtrend that has been acting as resistance links the 13 November, 21 December and 11 January highs. At present, USD/CAD trades right in the middle of this trend line and very close to multi-year lows. A gradual grind lower towards 1.2600 then 1.2500 seems likely.

USD/CAD daily chart