Tuesday April 20th, 2021

The US$ dips to 7-week lows, Oil prices strengthen, equity markets weaken and US yields inch higher as risk sentiment returns. President Biden met a bipartisan group from congress on Monday as talks remain at an initial phase. The Administration wants to fund its US$2.25T plan via tax hikes, which implies lower debt issuance which could weaken US yields and weigh on the US$. China’s President Xi speaking at the annual Boao Forum for Asia said, “However strong it may grow, China will never seek hegemony, expansion or a sphere of influence, nor will China ever engage in an arms race”. President Xi warns against economic decoupling and called for a new world order. CNY strengthens to fresh April highs up 0.2% while INR remains under covid pressure down 0.2% and Asian currencies rally 0.2% on average vs US$. Trading currencies are mixed with NOK lower 0.2%, JPY & MXN are down 0.25%, ZAR falls 0.5%, while AUD & NZD are both up 0.15% vs US$. No key economic data releases in the US today or Wednesday, so expect markets to remain focused on US Infrastructure updates with President Biden speaking today.

Oil prices strengthen, with Brent crude up 1% on a combination of Libyan exports disruptions, a weaker US$ and expectations that US stockpiles are expected to fall. The C$ opens off the day’s highs despite stronger oil prices as Cad yields eased and markets await BOC on Wednesday. Monday’s Canadian Federal budget for 2021-22 sees 154.7b deficit, it included a 101.4B in covid recovery spending over 3-years and adds a 3% tax on big tech firms that operate in Canada. No key economic data releases today, on Wednesday BOC are expected to keep rates on hold and to announce it is cutting its bond purchases from current levels. Support rises to 1.2475 with resistance at 1.2545. 

Euro edges higher amid ongoing US$ weakness. The EU continues under lockdown restrictions but has been picking up its vaccination efforts and is set to publish its verdict on the J&J single dose vaccine today. Political uncertainty in Germany has eased as the CDU/CSU bloc vote for the party’s chancellor candidate. Focus now shifts to the ECB rate decision on Thursday and are looking for a more optimistic message from the central bank. Intraday there are no major data releases so expect markets to consolidate around current levels. Support rises to 1.1980 and resistance resetting at 1.2075.

EURGBP rebounds 0.2% as the EU’s strengthening vaccination efforts help provided support to the Euro. Support rebounds to .8585 (1.11650) with resistance at .8700 (1.1495).

GBP trades towards 6-week highs at 1.4 vs US$ on stronger domestic economic data and a weaker US$. UK saw a positive set of employment data today with unemployment falling from expected 5.1% to actual 4.9%. Markets are now focused on Wednesday’s UK CPI, PPI and BOE Ramden speech for a window to the UK pandemic recovery efforts. The UK’s strong vaccination program and reopening its economy is providing an underlying support for GBP. Support rises to 1.3925, while resistance resets at 1.4030.