News & analysis


The Canadian dollar sat near the top of its post-outbreak range at the end of last week as the US dollar continued to weaken at the margin. With heightened tensions between the US and China along with elevated case counts in the US, the greenback’s weakness spills into this week, allowing the loonie rally to continue. With limited data on the calendar for Canada this week besides May’s GDP release on Friday at 08:30ET, the US data calendar is expected to drive USDCAD this week. Markets took their cue from how the dollar traded last week and a familiar tone is expected this week. In oil markets, WTI started this week off marginally lower as US-China tensions weighed on risk appetite, while lacklustre demand conditions remain a concern as the US economy continues to battle with the Covid outbreak, which could potentially force states to reimpose lockdown measures. Thursday’s Department of Energy US inventory report will be in scope for oil markets for this reason after inventories climbed by 1.6m last week.


The dollar opened the week with another kick in the teeth and fell against the entire G10 board as US-Sino tensions continued to ramp up, sending the Bloomberg dollar index to its lowest since February 2019. Chinese authorities entered the US consulate in Chengdu this morning after ordering the facility to be vacated in retaliation for the forced closure of the Chinese consulate in Houston last week, marking a rise in US-Sino tensions. This likely helped Gold rise to an all-time high after having rallied in recent sessions as well, as prospects for a smooth economic recovery in the US are losing spirit. The US reported a total of 62,000 new cases on Sunday with several states recording the highest daily increase and Florida surpasses New York as the epicentre of the outbreak. Although risk sentiment has deteriorated on multiple fronts for the US, the dollar may find relief in the Senate GOP bill that is expected to be introduced this afternoon. The $1trn plan is expected to have an extended unemployment benefit plan to replace 70% of the jobless individuals’ lost wages, according to the White House. It would also provide $105bn for schools and $16bn more for virus testing and tracing, while also providing tax credits for businesses to help with rehiring and reopening. This week’s main event will be the US Federal Reserve meeting that concludes on Wednesday. The Fed has already slashed rates to zero and pledged to purchase an unlimited quantity of sovereign bonds, while also unveiling a series of emergency facilities. With no expected changes to the interest rates, the focus for this meeting will be on any plans for additional stimulus such as yield curve control or explicit forward guidance, along with changes to the economic outlook. The size of the fifth US stimulus package will also be in scope as lawmakers try to build a consensus this week.


The euro is eyeing six consecutive weeks of gains with a strong open against the dollar today and just receded from highs last seen in September 2018. The persistent selling bias surrounding the dollar was supported by another flare-up in US-China relations and worsening concerns about the US outlook, which allowed the EURUSD pair to climb higher. European Central Bank executive board member Fabio Panetta stated in an interview with La Repubblica this morning that he does not see a return of economic activity to pre-crisis levels before the end of 2022. By the end of 2022, the Bank foresees an increase of 1.3 percentage points in GDP and 0.8 percentage points in inflation. Despite the bleak outlook, Panetta mentioned he does not see any economic reasons for the bank to change its decisions or actions as the Pandemic Emergency Purchase Programme is functioning smoothly. The German IFO survey is the next release of note in the docket this morning. Business climate is expected to print at 89.3 while the current assessment and half year projections are forecasted at 85.0 and 93.4 respectively, all three a decent increase from the previous release. Later during the week, GDP figures across Europe are scheduled for release. The data will provide a snapshot of how much the containment measures have hammered the euro-area economy, and will provide more detail on the relationship between the economic indicators released throughout the quarter and the actual output.


Sterling is lagging the rest of the G10 this morning but has managed to post some minor gains versus the US dollar. In relative terms, the euro’s strong performance means that GBPEUR is within spitting distance of its lowest levels since March this morning. Brexit risk is one possible cause of the pound’s relative underperformance, as talks between the UK and EU once again seem to have reached an impasse last week. Chief EU negotiator Michel Barnier and his UK counterpart David Frost will meet for further talks this week, as issues such as “level playing field” provisions and fishing rights remain intractable. The rest of the week’s data calendar is moderately eventful, with Nationwide house prices released from tomorrow alongside realised sales from the Confederation of British Industry, ahead of Bank of England Money and Credit figures on Wednesday.



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