Canadian dollar extends losses

The Canadian dollar has extended its losses on Thursday as USD/CAD briefly punched above the 1.28 line earlier today. It has been a rough start to 2022 for the Canadian dollar, which has fallen over 1.0% against its US counterpart.

Canada’s Building Permits for November were much stronger than expected. The gain of 6.8% crushed the consensus of 2.3% and was sharply higher than the 2.4% reading in October. This robust release is reflective of the hot housing market, but we may be in for a cooling-off period, as new health restrictions could hamper economic growth. Quebec has announced a curfew and Ontario is restricting indoor events in response to the surge in Omicron infections.

The job market gets a report card on Friday, with the release of key employment reports. While the US is expected to show strong job growth December, the forecast for Canada is a negligible 27 thousand new jobs, after 153 thousand were added in November. If the forecasts prove accurate, the Canadian dollar could pile up more losses before the week is done.

The US dollar is getting a boost from US bond yields, which continue to head higher. This points to elevated risk sentiment, as market participants feel that although Omicron is causing a massive number of infections, it is less severe than other Covid variants and will not derail economic activity to the extent seen in previous Covid waves.

FOMC says inflation risk to upside

The FOMC minutes indicated that committee members viewed inflation risks to the upside, and agreed that tapering should be accelerated due to inflationary pressures and the strong recovery. Members did not provide a lift-off date for a rate hike, but the minutes stated that they were open to raising rates “sooner or at a faster pace” than previously anticipated. The markets have priced in a March hike at around 60%, with three rate hikes expected in 2022.

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USD/CAD Technical

• • USD/CAD is testing resistance at 1.2784. Above, there is resistance at 1.2929
  • There are support levels at 1.2558 and 1.2477

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