USD/CAD drops back below 1.2800 following choppy day
|- Tuesday was a choppy day for USD/CAD, but the loonie was ultimately an outperformer amid strong crude prices.
- USD/CAD traders remain focused on global dynamics ahead of Canadian jobs data on Friday.
Tuesday was a day of reversals for the loonie; USD/CAD performed well during the Asia Pacific session, falling back from Monday highs above 1.2860 to hit lows in the 1.2780s by the mid-European morning. The pair then reversed back to set fresh highs of the weekly highs of just below 1.2870, but now that move has completely reversed and USD/CAD is trading around 1.2780 again.
Choppy stuff, that’s for sure, amid a lack of any particular focus on Canadian domestic fundamentals. Loonie traders will need to wait until Friday for the release of the January jobs report at 13:30GMT and then January Ivey PMI at 15:00GMT for the next update on the state of the Canadian economy. In the meantime, the loonie is likely to continue to trade as a function of US dollar dynamics, global risk appetite and crude oil prices.
Indeed, strength in the former helped CAD outperform most of its G10 counterparts on Tuesday; USD/CAD finished the session 0.5% or 65 pips lower as crude oil markets rallied more than 2% across the board (and WTI broke to fresh 12-month highs above $55.00).
Strength in crude oil markets aids the loonie
Boosting crude oil market sentiment (as well as CAD) was a combination of factors including; 1) stimulus hopes as Congress moves ahead with budget reconsolidation and as Senate Republicans and the Biden administration negotiate, 2) an easing of vaccine efficacy following positive data on the Pfizer and Sputnik V vaccines, 3) optimism about strong OPEC+ compliance and expectations this will lead to a year of global crude oil inventory draws and 4) bad weather in the US boosting heating oil demand (and crude oil in tandem). CAD is particularly sensitive to boosts to US fiscal stimulus hopes, as Canadian exports will stand to benefit from any boost to the US economy.
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