USD/CAD chops either side of 1.2600 level amid conflicting OPEC+, Fed forces

• After swinging as low as the 1.2570s, USD/CAD is back around 1.2650.
• The pair has seen choppy trade amid conflicting OPEC+ and Fed forces.

USD/CAD has seen a choppy last few hours of trade. Initially, the pair was dragged beneath the 1.2600 level and to lows in the 1.2570s (fresh weekly lows) amid a strengthening of the loonie amid a surge higher in crude oil prices on the back of bullish OPEC+ news. However, a sharp pick up in the US dollar in recent trade after Fed Chair Jerome Powell’s remarks at on online WSJ Summit has seen earlier weakness in the pair completely reverse.

USD/CAD now trades roughly flat on the day just above the 1.2650 mark, with CAD and USD now vying for the number one spot in Thursday’s G10 performance table. Recent strength in oil prices means that CAD is now the second-best performing G10 currency on the week (having recently overtaken the Aussie), up roughly 0.7% versus the US dollar as of midway through Thursday’s US session.

Conflicting OPEC+/Fed forces

OPEC+ surprised markets by agreeing to roll over its current output quotas in April. Going into this week’s meeting, markets had been expecting the cartel to modestly increase output in April. Moreover, there was a lot of chatter in and around Thursday’s meeting of another potential rollover of output cuts into May, though the cartel will make the final decision on this when it meets again at the start of April.

Meanwhile, and also coming as a surprise to markets, the Saudi Arabian decided to maintain their voluntary 1M barrel per day in additional output cuts in April as well. Chatter surrounding the Saudi Arabian situation suggests the country will start to steadily ease back on these voluntary cuts from May. The fact that neither OPEC+ or the Saudis are increasing oil output in April is a bullish surprise for oil markets, hence why WTI is up roughly 5% on Thursday and trading above $64.00.

Turning to the Fed and the reason behind the US dollar’s recent rally; Fed Chair Jerome Powell was speaking at an online WSJ event and stuck to his usual dovish script but failed to give the market “what it wanted”. What the market wanted was for Powell to talk about the kinds of policies the Fed might employ to fight rising bond yields (like yields curve control or weighted average maturity extension etc.). He refused to be drawn into talking about these topics, which seems to have been interpreted as reluctance to fight rising bond yields, hence why they have spiked higher (taking USD with them).