Dollar Advances for Second Day; Volatility Expected

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Dollar Advances for Second Day; Volatility Expected

APRIL 21, 2021

After opening yesterday’s session on the back foot, the dollar regained its losses to close slightly up on the day. 

Overview

The dollar is modestly stronger this morning. The two days of gains mark the most sustained, albeit minuscule, rally for the dollar since last month.

The greenback is benefiting modestly as global stocks pull back from all-time highs.  A surge of Covid cases and deaths, especially in Asia, is dampening the global recovery outlook.  For example, Japan is moving towards declaring a state of emergency and a new lockdown, only months before the Summer Olympics are scheduled to begin.

Once again there is very little in the way of fundamental data or Fed speakers today to drive currency markets.  Purchasing manager’s index and new home sales data on Friday remain the biggest risk even on our domestic agenda.


What to Watch Today…

  • Bank of Canada decision at 10 a.m.

View Economic Calendar

EUR  

After a long streak of modest gains, the Euro is down for a second day against the U.S. dollar.  The pair remains within 1% of its recent highs but the euro’s inability to extend its rally will be cause for concern for Euro bulls.  The vaccine outlook for the Eurozone remains positive and European equities popped higher overnight, but it was not enough for the Euro to stave off a resurgent U.S. dollar.

We are now looking ahead to tomorrow’s European Central Bank meeting.  It is our view that the ECB is unlikely to give clear guidance on monetary policy as the fundamental outlook remains cloudy.  However, we do expect more clear communication by the summer

CAD  

After a significant move yesterday, the Canadian dollar could be poised to be the most volatile currency during today’s session.  The loonie had been trading close to multi-year highs against the greenback but a sharp sell-off in oil caused the Canadian dollar to lose half a percent of value late yesterday.  USD/CAD was mostly unchanged overnight ahead of the Bank of Canada’s policy decision at 10 a.m.

The central bank is expected to pare back its asset purchase program as Canadian economic data has outpaced expectations.  We will also be looking for clues for the BOC’s timeline for interest rate hikes.  Their current guidance is no moves before 2023 but that is likely to move closer at some point.

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