The Canadian dollar continued to post gains in yesterday’s session as the risk environment remained supportive, while October’s GDP report printed favourably for the economy despite the latest monthly reading printing bang on expectations at 0.8% MoM. That is because the release saw September’s GDP get revised upwards from 0.1% to 0.2% and the preliminary estimate for November print at 0.3% MoM, which is higher than many expected given the impact of the BC crisis that month. Overall, the October and preliminary November GDP data suggests that Q4 growth will exceed the Bank of Canada’s 4% QoQ annualised projection, albeit from a lower Q3 base than previously expected. This keeps Canada’s economy on track to see rates rise in the middle quarters of next year, with risks skewed towards earlier normalisation. Today is likely to be absent from economic events and overall market liquidity.
The dollar weakened further across the board in yesterday’s session as the risk-on mood in markets extended following more optimistic Covid headlines while equities surged, with the S&P 500 hitting another all-time high. Sentiment was supported by economic data which boosted optimism that economic growth will weather the Omicron outbreak, and a UK study suggesting that Omicron infections are less likely to lead to hospitalisations than Delta. Data from the US showed initial jobless claims declined further to 205,000, bang on expectations, while November’s durable goods orders printed at 2.5%, well above the 1.8% expected. For today, headline flow is set to be more muted with liquidity thin ahead of the Christmas break.
The euro failed to benefit from yesterday’s dollar weakness as concerns around energy prices and looming measures remain too high in the eurozone to see EURUSD break above the current range. The limited action in EURUSD isn’t just due to developments capping upside in the currency pair, but also the current levels it trades at. EURUSD is currently trading towards the top of its range that has been in place since the rise in cases in the continent towards the end of November. The Financial Times reported Mario Draghi and Emmanuel Macron called for a more credible fiscal framework for the EU and stated the EU fiscal spending limits must be reformed, however this had little impact on FX markets. The data calendar is empty today as markets enter the Christmas break.
With holiday liquidity setting into markets now, the pound enjoyed a favourable boost yesterday as year-end flows seemingly support a rebalancing out of the dollar. The more supportive risk backdrop is helping and yesterday’s report from UK Health Security Agency that the hospitalisation rate of Omicron is 50-70% less than Delta is definitely aiding overall market sentiment at a time where new cases are breaking new records. There is little pencilled into the data calendar today with it being Christmas eve.