Yesterday’s session was dominated by the news that the Omicron variant was found in the US which contributed to keeping market volatility elevated. Commodity currencies are set to face a key challenge today as OPEC+ members meet to decide on whether to go ahead with a planned output hike in January.
There has been some back-peddling on the repricing of rate expectations after Powell’s comments on Tuesday, and by good ADP and ISM manufacturing figures yesterday. Given the material downside risks caused by the Omicron variant, markets will likely require the data flow to remain quite strong to price in an earlier rate hike. Markets appear widely positioned for a delay in the hike given uncertainty related to the Omicron variant. All in all, the dollar may find some stabilization today ahead of tomorrow’s nonfarm payrolls, although unpredictable developments about the new variant can rapidly shift momentum in either direction.
The CAD’s direction seemed to be a biproduct of USD moves yesterday. Until we have some clarity around the Omicron variant, it is hard to commit too much capital to the view. Today, is all about the OPEC+ meeting and whether they proceed with their planned 400k bpd increase in production. There is likely to be a kneejerk reaction depending on whether they proceed as planned, delay or reduce the amount. Flexibility remains key in the current environment, but a big 24 hours or so for the loonie with employment data to be released tomorrow. Volatility ahead!
Following a peak in EUR/USD volatility on Tuesday, the pair has remained firmly rangebound. Let’s see whether some support starts to build at 1.1300- a possible benchmark for dollar/virus-related sentiment. We could see the pair trade sideways for today if there are no new developments on the virus side and ahead of tomorrow's US payrolls.
The GBP has remained supported as markets revised expectations for a December Bank of England rate hike after MPC member Catherine Mann’s comments on Tuesday. The market is currently pricing in 8bp of tightening for the December meeting. For today, except for any news on the Omicron spread/vaccine efficacity, markets will have no data or BoE speakers to further direct their policy expectations. GBP may hold around current levels, although any further risk-off swing could provide some strong support for the currency.
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