News & Analysis


USDCAD rose 0.6% from open to close in yesterday’s session to post its biggest intraday gain in almost five weeks. The catalyst for the loonie’s decline was events in oil markets. While the Canadian currency was trading near multi-year highs, a 1.62% drop in crude oil was enough to spark a large retracement. WTI fell on reports that the US House panel advanced a bill that could allow antitrust lawsuits to be pursued against OPEC for their collusive price-setting behaviours. The so-called NOPEC bill passed a vote in the House Judiciary Committee, but isn’t expected to be made into legislation as it still has to pass both chambers. The developments came at a time when countries placed India on an international travel ban due to their current Covid-19 status. Not only will this dampen demand for crude via air travel, but many are speculating that India itself will impose new restrictions given the severity of the latest wave. This is a big blow for demand conditions given India’s role as the third-largest oil importer globally. Today, the loonie could rebound depending on the message struck by the Bank of Canada. The central bank meets today at 15:00 BST and is expected to taper its QE programme from C$4bn a week to C$3bn as the overall programme approaches the confines of its scope. With the BoC being the first major central bank to announce the tapering of its QE programme, how the message is delivered will be key for FX markets. News of a swift and aggressive tapering timeline will spark the loonie back into life and result in markets bringing forward their expectations of policy normalisation. However, we see this as an extreme case and one that holds little probability. BoC Governor Macklem is unlikely to give such explicit forward guidance given Canada’s fluid Covid-19 situation at present, however, the economic projections in the Monetary Policy Report could give a greater indication.


With risk sentiment taking a modest hit during the latter parts of yesterday’s trading session following new Covid contagion hotspots across the globe, the US dollar saw a rebound across the G10 while trading flat on the day against safe haven currencies JPY and CHF. Federal Reserve Chair Jerome Powell reiterated his stance on inflation yesterday in a letter by stating inflation will temporarily rise this year, but also noted that the Fed is committed to controlling any increase beyond its 2% target as they “do not seek inflation that substantially exceeds 2%, nor do we [they] seek inflation above 2% for a prolonged period”. Powell stressed that the Fed is fully committed to both legs of their dual mandate – maximum employment and stable prices. Economic data likely won’t dominate market sentiment today, although markets will watch the EIA crude oil inventory report at 15:30 BST.


The euro traded down on the day against the US dollar yesterday, with the bulk of the weakness occurring in the London session while the pair stabilised through the US session and overnight. The move stemmed from a modest rebound in the US dollar as the euro still rallied against GBP and riskier currencies throughout the course of yesterday. Mixed headlines around the eurozone did little to make the single currency’s price action stand out in the G10 FX space, with Johnson & Johnson resuming its shipments to Europe while German politics caught markets by surprise. Just hours after Christian Democratic Union leader Armin Laschet secured his position as the party’s nomination for September’s elections, the Greens surged ahead to become the most popular party in Germany, taking a seven-point lead over Chancellor Angela Merkel’s conservative bloc. The vaccine news from Johnson & Johnson may have had a limited impact on the euro as markets were broadly expecting shipments to resume following the European Medicines Agency’s similar approach with the AstraZeneca vaccine. The EU has ordered 200 million doses of the one-shot J&J vaccine for this year, which should boost the continent’s lagging vaccination rates. Meanwhile, the Netherlands announced some restriction easing for next week. The curfew will be removed from April 28 onwards while restaurants and cafes may reopen to receive guests outdoors. For today, euro price action will be at the mercy of general market sentiment with little on the euro area calendar ahead of tomorrow’s European Central Bank meeting.


Sterling got dragged down with most of the G10 currency board yesterday as risk appetite dropped, with commodity currencies leading the losses. It only took a marginal trigger for sterling to retrace back below key psychological levels after its rally started to hit strong resistance levels in yesterday’s session. The downturn in risk appetite seemed enough to set the rally back in this instance. This morning, sterling is trading in a similar vein to yesterday as it sits 0.09% lower at the start of the European session. The UK reported inflation data for March this morning, which came in at 0.7% YoY, up from 0.4% in March. The rise in inflation during the last month of the national lockdown was partly due to base effects, with the main drivers being the cost of fuel and clothing. Core inflation also rose from 0.9% to 1.1%, while producer prices also showed a 1.9% rise in the cost of goods that leave factories – the highest reading since the middle of 2019. While the upward trajectory bodes well for the Bank of England as inflation tracks back to their 2% target, stripping out the base effects in such readings is always hard, meaning the underlying inflationary forces are difficult to gauge. For this reason, while the return of headline inflation towards 2% is welcome, it holds little sway in monetary policy decisions at present. For that reason, this morning’s rise in CPI has done little to reverse sterling’s recent losses.



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