News & analysis


The deterioration in the risk environment resulted in the loonie posting further losses against the dollar yesterday as the news cycle focused on CBC’s report that President-elect Biden could cancel the Keystone XL project as early as January 20th. A key transportation pipeline for Canadian oil to US refineries and distribution centres, the Keystone XL project has drawn substantial political opposition due to it crossing the fragile ecosystem of the Nebraska sandhills while providing a commitment to invest further in Canada’s oil industry. Environmentalists have opposed the project heavily throughout the approval process as it uses oil from Alberta’s oil sands, where extraction leaves a hefty carbon footprint. The news by CBC led TC Corp yesterday to announce that it will aim for the pipeline to be carbon neutral by 2030 – meaning all pumping stations along the route will run off of renewable energy. In the interim, TC Corp has committed to buying credits to fund emission-reduction projects to offset the project’s carbon footprint, while increasing the share of union labour on the project. The commitment is a $1.7bn last ditch effort to try and keep the project alive. Little news has come about since the initial headlines, but the loonie’s focus on Biden’s inauguration speech will definitely be on any comment on Keystone XL and what this means for Canada’s oil exports.


The US dollar trend has reversed since Monday following an improvement in risk appetite and US markets returning back from a long weekend after Martin Luther King Day. The Japanese yen and Swiss franc joined the dollar and sit at the bottom of the pile of G10 currencies this morning before Janet Yellen, Treasury Secretary nominee, will testify to the Senate Finance Committee ahead of Joe Biden’s inauguration on Wednesday. Janet Yellen provided some commentary ahead of the event and stated the US risked “a longer, more painful recession” and “long-term scarring” if it did not move quickly to inject more fiscal stimulus into the economy, while she also argued that budget deficit concerns should be put on the back burner as “he smartest thing we can do is act big”. Her comments will reinforce President-elect Joe Biden’s push for the $1.9tn stimulus measures which he outlined last week. For President Donald Trump, today is the last full day in office and final touches are being put on plans for Joe Biden’s inauguration.


The euro fared relatively better than other G10 peers against the dollar yesterday, which may be a by-product of the currency weakening over the previous seven trading days. However, the single currency is trading higher today as the risk environment stabilises in markets and Italian political unrest subdues somewhat. Italian Prime Minister Guiseppe Conte last night won a vote in Italy’s lower house by a sizable margin and faces a vote in the Senate today. With Matteo Renzi’s small Italia Viva party quitting to support the government coalition last week, Conte holds a wafer-thin margin in the Senate vote. If Renzi’s senators abstain, it could be enough for Conte to remain as Prime Minister, but it would lead to a very unstable minority government. However, any defection from party lines would see Conte’s resignation, resulting in President Mattarella giving a mandate to another candidate to try and form a majority, or else the Italian electorate will head to the polls. Today’s economic calendar includes sentiment data from Germany, with the ZEW Survey for January set to continue the trend of the last months: the current situation index is set to deteriorate, while the expectations index is expected to have increased slightly according to the median of forecasts submitted to Bloomberg. This represents the worsening of the current virus situation in the eurozone, with tightened and extended lockdowns being key, while the rollout of vaccines keeps markets hopeful for a recovery to kickstart over the coming year.


Sterling has stabilised somewhat this morning after sustaining two consecutive days of losses as the risk environment in markets improves. The British news cycle today centres on the upcoming March budget, where tax increases are expected as the government tries to bring down the budget deficit. With Boris Johnson including no increases in income tax, national insurance and VAT in the 2019 Conservative party manifesto, it is highly believed that the Chancellor of the Exchequer is left with few options and will therefore raise corporation tax from 19%. However, such a move so early on in the economic recovery will invite substantial backlash from businesses, especially those heavily impacted by lockdown measures already. Meanwhile, the rollout of vaccines in the UK continues to be a success with the nation vaccinating 5.9% by the end of last week, while the speed of distribution is set to increase further this week. Government officials continue to reiterate that March will see a reassessment of the current lockdown measures as they implore people to stick to the stay at home order. With little in the data calendar for GBP today, the focus will remain on the broad US dollar move ahead of key events in Washington.



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