The Canadian dollar was the best performer against the US dollar in Friday’s session, advancing against the greenback to the highest level in three weeks despite the economic calendar being empty. The loonie retraced gains somewhat this morning amid heightened fears around Omicron and its impact on the global economic recovery. This week’s key event will be the Canadian labour market report on Friday, although markets will also watch tomorrow’s OPEC+ decision on crude oil output, especially in light of the damaged pipeline in Libya, which comes less than two weeks after the shutdown of the Shahara field. Together, the closures will cut Libya’s oil output to around 700,000 barrels a day, which is the lowest in more than a year. Any sustained declines could counter efforts from OPEC+ to boost production, which means loonie traders will carefully monitor the situation.
The US dollar slipped against most developed market currencies in the final trading session of 2021 amid thin market liquidity, with the Canadian dollar leading gains. The greenback rebounded this morning however as liquidity conditions normalised somewhat and investors assessed the impact of rising Omicron cases on the global economic recovery. Although liquidity is set to have recovered somewhat, markets in Australia, New Zealand, Japan and China are still closed today which means price action may be more muted. Virus conditions will be watched throughout the first half of the week while on Friday, markets turn to the Nonfarm Payrolls report which could support the dollar further if the release reflects stronger underlying growth momentum domestically amid global worries around Covid.
Events in the eurozone were light over the last week, which was visible in EURUSD price action for most of the week. Friday’s session included a fresh one-month high amid broader dollar weakness, but the pair reversed gains as the new year started and trading conditions normalised. There won’t be any high-tier macroeconomic data releases in today’s session, which means the pair could struggle to regain traction amid Omicron risks.
The pound ended the year with a bang and was among the top performers in the G10 on the last trading session of the year, although markets were already dealing with a cheaper sterling to begin with. UK house prices rose robustly last week, but squeezed incomes and higher interest rates may cool down the property market in 2022 according to Bloomberg Economics. Today’s bank holiday in the UK means trading is set to be light while the economic calendar is empty. Over the coming month, focus will be on media commentary from Bank of England members to gauge the likeliness of another rate hike in February while in the background, surges in the virus case count are being watched. Boris Johnson’s government is developing contingency plans to help companies and supply chains avoid disruptions caused by Covid-related staff absences, but aims to stay clear of fresh lockdowns beyond the current measures.