USD/CAD: market expectations and NFP

 
 
 
 
 
 
 

Federal Reserve Chairman Jerome Powell, speaking on Thursday, said the Fed was monitoring the rise in US Treasury yields, but did not signal possible interventions on its part.

Earlier, the Fed leaders said that before making decisions on monetary policy, it is necessary to restore the labor market and increase inflation, which, in their opinion, is still far from the target levels, but even if they are reached, the Fed leaders will allow some excess of the target inflation rate, which, is known to be 2%. At the same time, the US central bank did not indicate the target levels of employment and inflation, at which the bank will take action.

Against the background of Powell's statements, investors resumed the sale of US government bonds, which strengthened the rally in the growth of their yields and supported the dollar.

The DXY dollar index rose 0.2% on Thursday, hitting a three-month high of 91.83, and the dollar continues to strengthen today. At the time of this posting, DXY dollar futures are traded near 91.98, which is in line with late November 2020 levels and about 280 pips above a local multi-month low of 89.20 reached in early 2021.

The US dollar is also strengthening against the Canadian dollar, despite the rise in oil prices, which continue to rise amid optimism about the OPEC+ decision to extend the current production restrictions until the end of April. On Thursday, the OPEC+ coalition decided to increase aggregate production in April by 150,000 barrels per day. Earlier, oil market participants assumed that the alliance would increase production by 0.5-1.5 million barrels per day. This decision by OPEC+ may lead to an increase in oil prices above $ 70 per barrel, despite the large reserve production capacity, economists say.

The loonie is receiving support from rising oil prices, as well as expectations that the Bank of Canada will continue to slow QE if the economic recovery turns out to be stronger than expected. The report published on Tuesday by Statistics Canada pointed to the growth of the country's GDP in December by +0.1% and +9.6% in the 4th quarter of 2020 (against the forecast of +0.3% and +7.5%, respectively). GDP is considered to be an indicator of the overall health of the Canadian economy, and an uptrend is seen as positive for the CAD. At the same time, the Bank of Canada may be wary of encouraging over-strengthening CAD, as this is not beneficial to the country's exporters.

The relatively slow pace of vaccine introduction in Canada also poses some risk of diminishing optimism about recovery.

Today, market participants trading in the USD / CAD pair will be watching the publication at 13:30 (GMT) of the monthly data from the US labor market. Average hourly wages are expected to rise +0.2% in February, the number of new jobs created outside the agricultural sector by +182,000, and unemployment remained at 6.3%.

In general, the figures are not yet encouraging, but they are understandable due to mass layoffs in American companies and the closings of offices and shops due to the coronavirus. At the same time, the data indicate a gradual improvement in the US labor market after its collapse in previous months at the beginning of the 2020, and this is a positive factor for the USD.

At 15:00 (GMT) The Richard Ivey Business School will publish the Ivey PMI, an indicator that measures the business climate in Canada and is an important indicator of market conditions and the country's economy as a whole. A result above the 50 mark is considered positive (bullish) for the CAD. In January, this indicator came out with a value of 55.7 / 48.4. If the data for February differs significantly from the January indicators, it will also increase the volatility in the USD / CAD pair.

It is also worth paying attention to the publication (at 18:00 GMT) of the weekly data of the oilfield services company Baker Hughes on the number of active rigs in the United States.

On the week before last, their number was 309. Another rise is likely to have a negative impact on oil quotes, but, most likely, only in the short term.

If oil prices continue to rise, this will have a positive effect on CAD quotes, including in the USD / CAD pair.

But market participants will focus on the dynamics of the US dollar, and after Powell's speech yesterday it continues to strengthen both against the backdrop of growing yields on US government bonds and against the background of falling US stock indices.