Search ForexCrunch
  • USD/CAD on the back foot in the wake of China’s decision to lift its official yuan exchange rate.
  • US oil rallies and recoups the start of the year’s loses with a vengeance.

In a sharp drop in the US dollar and a spike in oil, USD/CAD is now trading down some 0.76% on the day having travelled from a high of 1.2791 to a low of 1.2673.

The US dollar fell against a basket of major currencies on Tuesday, in the wake of China’s decision to lift its official yuan exchange rate by its highest margin since it abandoned the dollar peg in 2005.

China’s central bank set the official yuan midpoint at 6.4760 per dollar before the market opened, up 1% from the previous fix, the biggest change higher since2005. In the offshore market, the yuan strengthened as far as 6.4119 for the first time since mid-June 2018. It started the week at 6.494. 

The commodity complex has been lifted on the move while US oil rallies hard and recoups the start of the year’s loses with a vengeance.

Oil prices climbed more than 4% on Tuesday as OPEC+ was nearing a compromise to hold crude production steady in February, while tension simmered following Iran’s seizure of a South Korean vessel. 

During talks with the Organization of the Petroleum Exporting Countries and others including Russia, Saudi Arabia offered to make voluntary cuts to its oil production in February, two OPEC+ sources said.

Oil prices remain firmly in view.  

Meanwhile, the US Senate runoff elections in Georgia were also eyed which could renew the market’s push for USD weakness should the Democrats flip both seats as the prospects of more fiscal support would eventually outweigh other potential agenda items (like taxes).

In other news, a third lockdown in the UK adds a wrinkle to overall risk sentiment which weighed on stocks at the start of the week.

However, US stocks turned higher to further dent the dollar’s attractiveness on Tuesday.

It’s a two-sided coin for the stocks.

A Democratic victory in both races could take control of the Senate away from Republicans, paving the way for further stimulus measures. However, it also raises the risk of higher corporate taxes and more regulation.  

As for positioning, CAD net positions have held in positive territory for the past two weeks having bounced sharply in late December.