Friday February 5th, 2021

The US$ has rallied 1% in Feb supported by vaccination and stimulus optimism. The Senate adopts the administrations plan for US$1.9T stimulus in a 51/50 vote, Dems hope to finish crafting details of the COVID relief bill and present it to the President by early March. Expectation that a US stimulus plan could be completed in Q1 has increased expectations that the US economic recovery will outpace its peers, which will also support a stronger US$. US vaccinations reach +33 million since Dec14th, with +8% of the total US population being inoculated. On Monday the Senate will switch its focus to the impeachment trial of former President Trump, which is expected to be completed within a week. CNY drops to 1-week lows after President Biden signals a more aggressive approach to China. CNY flat vs US$, while Asian currencies were mixed to the US$ with INR down 0.1%, while SGD up 0.1% and KRW & MYR rallied 0.25%. In Australia, the Reserve Bank of Australia said it didn’t expect rates to rise until 2024. Trading currencies were also mixed vs US$ with JPY down 0.06%, NZD down 0.2%, while AUD strengthened 0.12%, MXN & NOK up 0.2% and ZAR rallied 0.3%. Focus shifts to the US unemployment data including Nonfarm payrolls, as well as US Good & Services Trade Balances.

Oil prices continue stronger up 1% today with Brent Crude approaching US$60PB on demand hopes from US stimulus, vaccination roll outs and ongoing OPEC output cuts. Brent crude has rallied 17% since January and is back to its pre-pandemic levels, Goldman expects Brent oil to rally to US$65pb into Q2. C$ continues to hold within its current narrow range balancing between a strong US$ vs strengthening oil prices. Canada’s weaker vaccination program and the US buy America policy is putting pressure on the loonie. If oil prices remain firm, our bias is to continue to sell US$ in the mid 1.28’s for a retest of 1.27 level. A flurry of Canadian data today including unemployment data, Ivey PMI and trade data which will help provide intraday direction. Support holds at 1.2750 with resistance at 1.2881 (2021 highs).

Euro remains under pressure from weak EU vaccination rollouts and the anticipation of a slow economic recovery across the EU. Euro has fallen 1.3% in February, testing its lowest level since Dec1st overnight. German Chancellor Merkel said it was too early to ease lockdown, while vaccination rollouts across the EU continues to face dose shortages and delays. Italian politics remains in focus, but markets feel former ECB president Draghi is the right man to help Italy during the current political uncertainty. Euro remains vulnerable to further weakness with the potential to retest 1.1800 vs US$. Support lowers to 1.1925 (Dec1st) as resistance lowers to 1.2010.

GBP is on track for its 4th-week of gains, finding support from its vaccination strategy and positive BoE comments. The BoE avoided sub-zero rates saying that it would need to give banks 6-month notice to prepare of any possible adoption of negative interest rates. The BoE gave strong hints that negative interest rates will not be used at this stage of the economic cycle. As part of its fight against virus variants the UK is set to impose mandatory quarantine from Feb 15th.  Focus shifts back to BoE Governor Baily who will be speaking again today and US unemployment data for intraday direction. Support rises to 1.3665 with minor resistance at 1.3720 and key resistance at 1.3792 (April 2018).