News & analysis


The loonie lagged G10 peers in taking its pound of flesh from the dollar yesterday as falling oil prices and upcoming event risk from the Bank of Canada kept the currency muted. The loonie’s focus today will be on both of those dynamics, with the Bank of Canada set to announce its latest policy at 15:00 GMT, while US inventory data is due out shortly after at 15:30 GMT. With no press conference following, we expect the BoC to hold fire on altering policy, opting to wait until April’s meeting when all communication channels are open. In the short-term, we expect the BoC to strike a more dovish tone considering the level of uncertainty that still remains around the economic outlook and increasing expectations of policy normalisation by markets. Tweaks to the rate statement could therefore offset this progressive move forward in expectations, with Deputy Governor Schembri hammering home the message to keep yields from rising too fast when he speaks tomorrow. Shortly after the BoC, CAD traders’ attention will shift to US crude inventory data. Inventories have been climbing of late, with last week’s data showing a 21.5m barrel build. While this was offset by falling gasoline inventories, with oil trading on the back foot already, a further pile–up in crude stockpiles could tip the balance to extend WTI’s sell-off. On net, we see the risks for USDCAD as tilted to the upside for today’s session.


A calm session in fixed income markets yesterday saw the DXY index fall 0.55%, with all G10 currencies taking their pound of flesh. The dollar still remains elevated compared with analysts expectations for 2021 at the beginning of the year, but yesterday’s Treasury auction still highlighted that there is demand to pick up US treasuries at the current yield, potentially capping further upside. Yesterday’s $58bn sale of three-year notes saw a bid-to-cover ratio of 2.69, the highest since June 2018, highlighting such demand pressures, while the yield on the auction sat at its highest in a year at 0.355%. However, the auction itself had the potential to cause further turmoil in markets, given last week’s disastrous 7-year auction. A sale of $38bn 10-year notes are due today at 18:00 GMT and could cause another steepening of the US yield curve. The back-end has been rising again this morning in early hours after dropping for the first session in five days yesterday. The rising yields are helping the dollar to trade firmly today. Meanwhile, US CPI data for February is due out at 13:30 GMT and could also have repercussions in fixed income markets, which could then spill over into the dollar. Headline CPI is expected to come in at 1.7% YoY but any upwards surprise could result in another wave of USD buying. On the reflationary trade, developments in Washington yesterday saw the House of Representatives vote to advance President Biden’s $1.9trn relief bill, clearing the way for the final vote today and Presidential approval later this week. Markets will be keeping a close eye on how the final vote shapes up, after the vote to advance highlighted a narrow majority of just 219-210.


The euro was among the G10 currencies that benefited from the USD fall yesterday and rallied against the majority of the G10 yesterday with the exception of GBP, USD and NOK. Headlines around the eurozone are light ahead of tomorrow’s European Central Bank meeting, with market participants attempting to assess the ECB’s reaction function through the central bank’s communication and weekly asset purchases until the press conference and fresh set of economic projections provide more guidance on Thursday. Meanwhile, the EU is struggling to boost its vaccine roll-out pace and remains a laggard compared to other regions, as the bloc has so far given 9.4 shots per 100 people compared to 27 doses in the US and 35 in the UK. Nevertheless, the EU remains on track to meet its target to vaccinate 70% of the adult population by the end of the summer as deliveries will likely ramp up to as much as 100 million doses a month by the end of March. European Commission Vice president Margaritis Schinas stated on Tuesday there will be an EU agreement soon on vaccination certificates, with the certificate proposal set to be discussed on March 17. The certificates will also include Covid-19 test results.  Eurozone countries that have been hit hardest by the pandemic are also more dependent on tourism, and the vaccine certificate being on the agenda means tourism may bounce back this summer without posing additional virus risks.


Fresh headlines around increased UK-EU tensions and virus concerns from Britain’s top medical advisers from yesterday were not enough to weigh down sterling as the currency continues to benefit from broader narratives including a swift vaccine roll-out and prospects of economic reopening, with the pound remaining the top performer against the US dollar over the 1-day window. European Council President Charles Michel accused the UK of blocking exports of Covid-19 vaccines, to which UK Foreign Secretary Dominic Raab responded by saying the claim is “completely false”. The discussion marks an escalation in tensions since the UK’s departure from the bloc and will be further discussed today, while the Brexit and Northern Ireland Protocol remains in focus as well. Meanwhile, Chief Scientific Adviser Patrick Vallance commented on the virus situation saying “it’s all pointing in the right direction” but “we’re certainly not out of the woods yet, even on this wave”, stressing the need for the slow and gradual easing of lockdown measures. With the calendar being virtually blank for the UK today, focus turns to UK-EU relations while GBPUSD traders will additionally focus on the final fiscal stimulus vote in the US.


After climbing 0.46% and 0.85% respectively yesterday, the Kiwi and Aussie dollars sit back under pressure today as the return on the greenback is felt across markets as a whole. Last night, comments from RBA Governor Philip Lowe put pressure on the Aussie as the head of the central bank stated market pricing for rate hikes in late 2022 and again in early 2023 are premature. Money markets continue to bet that the antipodean central banks will be some of the first to move after they effectively managed their domestic outbreaks and led the economic recovery in the G10 space. However, comments from RBA’s Lowe are putting a cap on expectations, with much uncertainty over the global economic recovery remaining, while the strength of the domestic recovery still needs to be seen once fiscal support is removed. Lowe’s comments came at a time when US yields continue to rise. With officials putting a lid on the rise in yields on AGB’s and NZGB’s, the rise in US rates is narrowing the yield differential and placing pressure on the currencies. Data out yesterday showed total card spending in New Zealand fell by 3.2% MoM in February, with retail card spending falling 2.5%. Meanwhile, consumer confidence indices in Australia continued to rise in March.



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