USD / CAD falls towards 1.2650 amid risk appetite

• USD / CAD has fallen from early European session levels around 1.2700 to current levels just above 1.2650 amid risk appetite.
• Bond markets are calming down, allowing markets to reorient in the positive macro context of stimulus, vaccine launches and falling Covid-19 cases.
• Looking ahead, Canadian GDP will be the main focus for USD / CAD on Tuesday.

Having hit two-week highs near 1.2750 last Friday, the USD / CAD it is experiencing a sharp pullback on the first trading day of March. The pair is currently trading at 1.2650, down about 0.7% or about 85 pips on the day. Much of the decline has occurred in the last few hours; USD / CAD is trading around 1.2700 as recently as shortly after the opening of European trade. With the pair falling below its 21-day moving average (currently at 1.26947), a break below support at the 1.2650 mark (highs from Monday, Tuesday and Thursday) would open the door to a run at the psychological level of 1.2600.

Performance of the day

Risk appetite combined with broad strength in commodity prices are the main reasons the loonie is doing better on Monday (along with the AUD and NZD); US stocks are trading firmly in the green (S&P 500 + 2.2%), while crude oil markets (WTI + 0.5%) are also firmer, albeit a bit more agitated ahead of this week’s OPEC + meeting. Bond market volatility appears to be decreasing, allowing markets to focus on positive macroeconomic developments in the U.S. The FDA granted emergency use authorization for J&J vaccine, setting the stage for an acceleration of the Launch of the vaccine in the country and hospitalization in the US fell below 50,000 for the first time since last November. Meanwhile, the House of Representatives voted in favor of US President Biden’s $ 1.9 trillion stimulus package (as expected), sending the bill for a vote in the Senate.

Moving on to factors more specific to the USD / CAD cross; Canadian current account data for the fourth quarter of 2020 was released at 13:30 GMT and was slightly better than expected; the difference in the value of exported and imported goods, services and interest payments in the Canadian economy was CAD -7.3B, slightly higher than expectations of CAD -8.3B and above the third quarter reading of CAD -10.5B. Meanwhile, Markit’s manufacturing PMI for the month of February saw a slight improvement to 54.8 from 54.4 in January, consistent with the notion that global manufacturing conditions remain (for the most part) positive.

In terms of US data, the final number of Markit’s leading manufacturing PMI index for February saw a slight upward revision to 58.6 from 58.5 and construction spending in January grew at a slightly faster month-on-month pace of 1.7 % versus expectations for a 0.8% month-on-month growth rate. However, these data points have been largely ignored, as market participants focused much more on the February ISM manufacturing survey.

The ISM Manufacturing PMI core figure beat expectations by 60.8 (58.8 expected), its highest level since September 2018. The employment sub-index rose to 54.4, which bodes well for the official labor market report. American this week. New orders rose to 64.8 from 61.1, in a sign of strong demand going forward. But the Prices Paid sub-index soared higher to 86.0, its highest level since 2008. According to Capital Economics, “higher oil prices and the depreciation of the dollar are putting some upward pressure on US prices. This time too, but the scale of the increase in the ISM price paid index goes far beyond what can be explained solely by those factors. ”The economic consultancy goes on to say that“ the comments in the report also make it clear that this shortage it goes well beyond semiconductors, and companies in all industries report shortages and problems with suppliers to meet demand. “

Looking ahead, things will remain quiet in terms of economic events scheduled outside of the US and Canada for the remainder of the session. But the stimulus and pandemic headlines will be worth watching. On Tuesday, the focus will be on the first estimate of Canadian GDP growth in the fourth quarter of 2020 (expected to reach an annualized rate of 7.5% QoQ). Note that consensus market growth expectations in the fourth quarter are well above the Bank of Canada’s growth projection of 4.8%.

Technical levels