The loonie is enjoying the broad USD weakness exhibited in markets today to carve fresh multi-year highs against the greenback in the morning of the European session. Over the Christmas period, little news was announced in Canada that was relevant for the loonie apart from Ontario imposing a province-wide lockdown, which would last two weeks in the northern district and a month in the southern regions which include major cities such as Toronto and Ottawa. Ontario’s finance minister Rod Phillips has been forced to resign due to these lockdown measures as he was found vacationing in the Caribbean despite the travel restrictions, but this holds little relevance to the Canadian dollar. In lieu of any fresh economic data ahead of Thursday’s manufacturing PMI and Friday’s labour report, markets will likely focus on the development of Canada’s Covid-19 situation while taking cues from the broad USD move in markets.
The turn of the year comes with extended dollar weakness this morning as markets return for the first business day of 2021. The greenback is trading in the red against the entire G10 currency board this morning, with the dollar DXY index standing 0.46 percentage points lower over the 1-day window. Improved risk appetite seems to be the dominant factor in currency markets today. Although the risk-on mood may seem less evident with JPY trading almost at the bottom of the G10 basket following fears of an emergency state being announced for Tokyo, while sterling sits at the bottom of the pile as national lockdown measures are speculated upon. In the US, daily numbers soared to a record of nearly 300,000 in the weekend, but markets are looking through the short term risks and putting their focus on vaccine hope. The US government’s top infectious-disease doctor Anthony Fauci stated that the roll-out of Covid-19 vaccines is picking up speed and could be fully on track within a week, supporting the improvement in risk appetite.
Whereas improved risk appetite can be a reason for the euro to perform worse compared to AUD, NZD and the Scandinavian currencies, the euro started today’s session in the green vs the majority of the G10 space as optimism about a global growth recovery supports the currency. The euro started the new year with fresh manufacturing Purchasing Managers’ Index figures from the Netherlands, Spain, Italy, France, Germany and the eurozone as a whole. The PMIs included a mixed batch of figures, with Spain, Italy, Germany and the eurozone printing figures just below expectations while the Dutch PMI exceeded the consensus provided by Bloomberg. All figures remained above the 50 level threshold for the first time since October. For the remainder of the day, the eurozone calendar is virtually blank, and all focus turns to German unemployment figures on Tuesday and services and composite PMI releases on Wednesday along with confidence indicators on Thursday.
While broad USD weakness continues to be a dominating theme in markets, sterling is struggling to climb higher against a soft dollar. The release of no-deal Brexit risk and broad USD weakness over the Christmas period allowed GBPUSD to rally some 2.36% since December 23rd, despite thin liquidity conditions in markets. However, the prospect of further lockdown measures being implemented despite four-fifths of England being subject to the tightest tier 4 conditions already is weighing on sterling’s ability to climb against the soft dollar today. The pound actually trades as the worst G10 currency against the dollar today, likely due to the increased risk from the domestic Covid-19 outbreak and expectations of a tightening in measures.