The Canadian dollar is trading slightly above the 1.27 line in the European session. Looking at today’s schedule, Canada Building Permits for November is expected to accelerate to 2.3%, up from 1.3% a month earlier. In the US, a flurry of job reports kicks off with the ADP Employment report, which is forecast to slow to 400 thousand in December, down from 534 thousand in November. Interestingly, the highlight of the week, nonfarm payrolls, has an identical estimate. Investors will also be all ears as the FOMC releases the minutes of the December policy meeting.
Busy times ahead for Fed
The Federal Reserve will be busy, as it is expected to double the tapering of its USD 120 billion bond purchase programme from 15 billion dollars to 30 billion dollars. The Fed may raise interest rates as early as March, which has become imperative due to red-hot inflation, which is currently running at a clip of 6.8%, its highest level in 40 years. The Fed dot plot at the December meeting indicated that policymakers plan on two rate hikes of 0.25% in 2022, but the markets, which are more hawkish, have priced in three rate hikes. With the US economy performing well, it appears that the economy is strong enough to withstand a series of rate hikes this year.
Treasury yields have been rising this week, as investors continue to sell Treasury bills on improved sentiment that the latest wave of the Omicron variant, although extremely contagious, will be less severe than originally feared. In the US, Omicron cases are exploding, with the average number of new cases breaking above 400 thousand, a 200% increase in the past 14 days. However, hospitalisation rates have not jumped higher and Covid-related deaths have actually declined slightly during this period. With no indications that Omicron will have a devastating effect on the global economy, investors remain in a risk-on mood.
- USD/CAD has support at 1.2558 and 1.2477
- There is resistance at 1.2784. Above, there is resistance at 1.2929