News & analysis


The Canadian dollar joined the G10 in retracing some of its recent price action in yesterday’s session as the yield spread between Canadian and US longer-term bonds rose back up to pre-pandemic levels. The loonie was placed under some pressure by the resurgence in the dollar, which wasn’t aided by the latest news of a lockdown in Quebec. However, optimistic tones from top bank economists at the annual outlook conference held by the Economic Club of Canada yesterday may be a reason why the loonie’s losses were contained. Major Canadian economists reiterated their belief in Canada’s aggressive economic recovery once the vaccine has been effectively distributed and the economy can reopen. Pointing to a rise in household wealth due to government transfers throughout the pandemic, economists painted a positive outlook for the Canadian economy over the coming quarters. For example, National Bank of Canada’s chief economist, Stefane Marion, stated that average disposable income increased by 12% during the pandemic. Today, the loonie’s losses are contained yet again with December’s labour force survey data due out this afternoon at 13:30GMT. The median expectation suggests 37,500 jobs were lost in the month of December, which would push the unemployment rate up from 8.5% to 8.7%, as tighter restrictions were imposed over the winter months in major provinces. While the latest Quebec measures aren’t included in today’s jobs data, the risks remain to the downside with respect to the net employment print.


The US dollar posted a fight in yesterday’s trading session after spending much of the earlier parts of the week on the back foot. Rising yields in the US, predominantly towards the back end of the curve on reflation hopes under a Biden administration, has helped to lift the dollar from the doldrums this week. With the Democrats controlling all parts of the legislative body come January 20th, markets are front-running expectations of additional US stimulus. This has been most visible in the US treasury curve but has also filtered into FX markets of late. The stabilisation in the dollar could continue, especially if additional stimulus results in US economic outperformance over the coming year, however, with little clarity over incoming measures it is safe to assume that the bounceback in the dollar may only be temporary as the risk climate remains tentative. Today, the focus shifts from Washington to the economic calendar as December’s Nonfarm Payroll data is released. Expectations of the net change in payrolls have steadily declined over the last few weeks, likely due to tighter measures being imposed in some states, and now sits at +50k – down from November’s 245K. Many, including Goldman Sachs, however, expect a negative reading in today’s NFP release due to November’s report occurring too early to fully capture the effects of the coronavirus resurgence. With initial claims also rising in December and other metrics of employment data also painting a bleak picture of December’s labour market, the risks to the expected 50k increase are substantially skewed to the downside. This could take a toll on the dollar in this afternoon’s session, but given that labour market benefits have been extended, with direct payments likely to be increased, the impact of a small slip in payroll data could be limited.


0.45% was the magnitude of losses posted over the course of yesterday’s trading session for EURUSD, with a bounceback in the greenback a key dynamic in FX markets. With another 0.39% loss this morning, EURUSD is back trading at where it started the week, marking a near percentage point swing in the meantime. Little news has come from the eurozone overnight beyond Italy’s proposal for spending €222bn in its latest pandemic recovery plan. The figure earmarked for investment and other projects is much greater than initially floated by Rome, but the figure now makes maximum use of the EU’s spending program. This comes after PM Guiseppe Conte vowed not to tap all loans available under the scheme in an attempt to soothe a fractious coalition. Today, there is very little in the calendar for the euro, placing the emphasis on the broad USD and Nonfarm payrolls to dictate the tempo.


After trading for flat against the dollar for much of yesterday’s trading session, GBPUSD closed out the day 0.3% lower as the dollar rally finally bit the pound. Sterling’s limited price action against a weak dollar in the early part of this week likely shielded it from posting substantial gains as the greenback fought back in yesterday’s session. Today, the pound continues to trade ever so slightly higher against the dollar despite the rest of the G10 training in the red as traders digest the latest plans by Prime Minister Boris Johnson to vaccinate hundreds of thousands of people each day by January 15th. While the latest lockdown measures in England and Scotland have weighed on the pound somewhat, optimism around vaccine distribution continues to support sterling also. The economic pain of the latest measures are only set to be in place while the vaccine is being distributed to key vulnerable people, meaning as much focus is on vaccine distribution as it is on the economic toll of the latest measures.




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