CAD
Similar to other high beta G10 currencies, the loonie has found itself caught up in this morning’s FX moves, with USDCAD up 0.25%. That said, with market-implied odds pricing a 60% risk that the BoC cuts by 50bps this month, it is Friday’s jobs data that is likely to be key for the loonie’s fortunes this week. The big risk as we see it stems from a soft Canadian print that contrasts sharply with a robust US jobs report. If realised, this is likely to see markets pricing in a hold from the Fed even as BoC easing bets accelerate, putting the question of how far US and Canadian rates can diverge front of mind for markets. A stronger USDCAD rate would be all be certain against such a backdrop, how much stronger should be the chief concern for traders – we think levels above 1.42 would not be unreasonable under such a scenario.
USD
After sliding sharply on Friday evening, the dollar has opened the new week notably stronger. The DXY index is currently trading at 106.3, having closed out last week below 105.8. Underpinning this move are events in France. The opposition National Rally has threatened to bring down the government, unless a budget deal is agreed today. Heightened political risks in Europe have sent traders fleeing to safety, with the dollar and the Swiss franc notably beneficiaries so far this morning. That said, later today ISM manufacturing PMIs are likely to garner some market attention. However, given the release time coincides with the deadline for a French budget deal, traders may also have one eye on events on the other side of the Atlantic.
EUR
The big news this morning comes from France, with National Rally leaders threatening to topple to government unless a last-minute budget deal is reached. This looks unlikely at present, with officials from the ruling administration sounding increasingly unwilling to compromise in recent days. Bardella, speaking on behalf of RN, has set a deadline of 3 pm GMT for the government to meet his party’s demands, which should keep market attention focused on the euro today, with little else of note in the data calendar. If a resolution is not reached, then a no-confidence vote looks all but certain – one that the government would lose. Heightened political uncertainty under such an eventuality would inevitably weigh on the euro. Indeed, EURUSD has already slipped 0.7% through early trading. We would be surprised if more downside is not in store too if the political dysfunction in France continues.
GBP
Sterling has found itself caught in the crossfire from events on the continent so far this morning. The pound has softened 0.4% against the dollar, though still managing to post gains of 0.3% versus the euro. With all of the excitement in France, a handful of third-tier data release out of the UK this morning, have largely proven a sideshow for markets. Lloyd’s business barometer slipped from 44 to 41, while the Nationwide house price index gained 1.2% in November, albeit with neither data print consequential for the pound. Looking forward, a speech by BoE governor Bailey on Wednesday is likely to be the key domestic risk event coming up. But, considering developments elsewhere, we suspect that it will be broader market cross currents factor that underpin sterling price action this week.
This content was originally published by our partners at Monex Canada.