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  • USD/CAD runs towards a 100% recovery, sellers looking to cash in.
  • US dollar picking up the EM sell-off, US yields make a comeback.
  • Coronavirus, with no signs of slowing, keeping CAD bulls at bay.

With market sentiment rebounding somewhat as ongoing concerns over the coronavirus have been granted a reprieve, at least for now, US yields have rallied, lifting the US dollar which in turn has lifted all boats – USD/CAD reached a fresh 1.3301 high having travelled from 1.3263 the low. 

The US dollar is on fire. US 10-year yields are +5.50%, trading back above 1.61% and the DXY pierced 98 the figure. The coronavirus remains a threat but the markets are brushing off the concerns, although the deterioration in risk appetite to date and the sell-off in many commodities and EM currencies appears to have given USD longs a boost.

The S&P 500 has made a nice comeback this week, +1.70% at the time of writing, recovering from Friday’s rout on Wall Street. Also, last night’s outcome of the Reserve Bank of Australia’s interest rate meeting raised some optimism in markets as well whereby the RBA left rates on hold with an upbeat assessment of the forward economic outlook. 

USD/CAD is on fire, but corrections in the offering

USD/CAD has been on fire of late, with little respite in what could be regarded as a move which has probably gone a little too far at this juncture having near enough completed a 100% recovery of the Nov-end of Dec range in roughly the same frame time from the begging of the year to now. The price of oil is also looking for a sustained correction just as OPEC’s technical committee convenes to deliberate on the need for an emergency production curtailment due to the economic impact of the coronavirus. 

Meanwhile, casing minds back to Friday, industry-level Gross Domestic Produce rose by 0.1% in November, coming in slightly above expectations for a flat print which should give the CAD some reprice in coming sessions – the CAD barely budged following the release, so a better late than never bid could be in the asking.

Spread of coronavirus shows no signs of slowing

However, the spread of the Wuhan coronavirus shows no signs of slowing which is likely keeping the bulls at bay while China reports another major spike in both confirmed cases and deaths in the region at the heart of the epidemic. The total number of confirmed cases in China now stands at 20,438 as of Tuesday morning, an increase of 3,235 on the previous day – an over 18% jump. The death toll is now at 425 in China, an increase of around 65 from Sunday.

“With the near-term outlook for risk challenged with uncertainty over potential supply chain disruptions owing to the virus, there really isn’t much here to compel major excitement in CAD one way or the other,” analysts at TD Securities argued, suggesting that 1.3220/30 remains a notable pivot (200dma) arguing that given the run in USD/CAD since the start of the year, some consolidation is likely to be in the offing. 

USD/CAD levels