Picture: Freesvg.com

November 30, 2021

  • Canada growth is far stronger than expected
  • Moderna CEO comments on Omicron vaccine roil markets
  • Powell testimony crushes Treasury yields

FX at a Glance:

Source: IFXA Ltd/RP

USDCAD Snapshot   Open 1.2782-86, Overnight Range 1.2733-1.2811, Previous close 1.2738

Canada’s economy is recovering vigorously. Q3 GDP grew 5.4% y/y, compared to a 3.2% slide in Q2.  Statistics Canada noted “Real gross domestic product (GDP) rose 1.3% in the third quarter, driven by household spending and exports as pandemic restrictions were phased out,”

Source:  Statistics Canada

USDCAD drifted lower on the news, but the domestic data is taking a back seat to news about the latest coronavirus variant.

Yesterday, USDCAD rode a rollercoaster, rising from the open at 1.2740 to 1.2790 then down back down again. The price action was due to the Omicron variant news shifting from hysteria to euphoria, which lifted stock prices.

The currency re-rode the coaster overnight rising from 1.2733 to 1.2811 just ahead of the European open on a Financial Times headline reading: “Moderna chief predicts existing vaccines will struggle with Omicron.”   

The USDCAD rally accelerated as WTI oil prices plunged from $71.17/barrel to $67.11/b, before recovering to $67.82/b. The Omicron news exacerbated the price drop, but WTI was already under pressure from fears that Opec will raise production in December as scheduled, even with the risk of weaker demand.

Fed Chair Powell’s opening remarks to the US Senate today, were released Monday at the end of the day. He said Omicron posed downside risks to the economy.

Technical view:  The USDCAD rally following the break above resistance in the 1.2590-1.2605 area may be running out of steam with the overnight rally to 1.2811. Bollinger band and RSI studies show USDCAD is overbought. However, the intraday technicals are bullish while prices are above 1.2730, which guards the uptrend line from the middle of November at 1.2690.

For today, USDCAD support is at 1.2730 and 1.2690.  Resistance is at 1.2805 and 1.2840.  Today’s Range 1.2690-1.2790.

Chart USDCAD 4 hour

 Source: Saxo Bank

G-10 FX recap and outlook

Traders don’t know what to think.  That explains the frantic price action in equities, bonds, and commodities seen in the past few sessions. Few, if any, heard of the Omicron variant a week ago, but today, a passel of experts opine on the impact of this latest coronavirus mutation while admitting “no one really knows.”

The latest risk aversion event was triggered by a headline in the UK Financial times “Moderna chief predicts existing vaccines will struggle with Omicron.”  Traders do not appear to have read the article, especially the part where CEO Stephane Bancel says they really don’t have a clue. “I think it’s going to be a material drop. I just don’t know how much because we need to wait for the data. But all the scientists I’ve talked to are like ‘this is not going to be good.’

In his remarks to the Senate, Fed Chair Jerome Powell noted, “The recent rise in COVID-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation. Greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions.”

Traders bought bonds and the US 10-year Treasury yield plummeted to 1.421% from yesterday’s peak of 1.564%.

EURUSD rallied from 112.86 to 1.1372 before retreating to 1.1350 in early NY trading. Eurozone inflation was sharply higher than expected, rising 4.9% y/y (forecast 3.7%) and Core inflation at 2.6% y/y (forecast 1.9% y/y). Does today’s data mean that the ECB president will still have no Lagarde for the higher readings? Probably not, if policymaker Luis de Guindos recent comments are a guide. He said factors behind inflation are of a transitory nature.”

The data was ignored with coronavirus news and month-end activities, the focus.

GBPUSD drifted higher, rising from 1.3309 to1.3369. The steep drop in US 10-year Treasury yields and the corresponding US dollar retreat supported the gains.

USDJPY sank to 112.69 from 113.72 under the weight of  Powell’s dovish comments  and lower Treasury yields.

AUDUSD and NZDUSD  racked broad US dollar sentiment and recouped some their losses in Asia in early NY trading as Wall Street prices rally from session lows.  

Chart of the Day: USDJPY

Source: Saxo Bank

FX open, high, low, previous close as of 6:00 am ET

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3794 Previous 6.3872

Shanghai Shenzhen CSI 300 fell 0.40% to 4,832.03

November Manufacturing PMI 50.1, October 49.2

Non-Manufacturing PMI 52.3, October 52.4

Chart: USDCNY 1 month

Source: Yahoo Finance