The Canadian dollar is a reliable bellwether of risk sentiment, and the sharp volatility we see from the currency is a reflection of the uncertainty of the times. In particular, Omicron, the newest variant of COVID, has unleashed itself across the globe as countries scramble to close their borders and take other health measures in the hopes of curbing Omicron’s impact.
The good news is that most reports have shown that Omicron is believed to be far milder than Delta, which hopefully means that this latest COVID wave will not cause as much devastation as Delta. However, there is no question that Omicron is far more contagious than Delta and poses a serious health hazard to unvaccinated people, which could potentially overload hospitals.
The uncertainty surrounding Omicron has resulted in significant volatility in the financial markets, with every headline being a potential market-mover. Risk-sensitive currencies such as the Canadian, Australian and New Zealand dollars all suffered sharp losses in November when Omicron fears were sky-high, and risk sentiment sank.
We’ve seen risk appetite improve in December, thanks to the reports of Omicron being less severe. This has allowed the risk-sensitive currencies to hold their own in December. With a very light economic calendar this week and thin liquidity, any news about Omicron could send the Canadian dollar for a ride.
Canadian markets are closed today and Tuesday, and there are no Canadian releases this week. This week’s lack of liquidity means that Omicron headlines could cause sharp intra-day movement, or the markets could have an uneventful Christmas week as investors focus on crackling fireplaces and eggnog rather than the latest Omicron headline.
USD/CAD Technical
- USD/CAD has support at 1.2756. Below, there is support at 1.2615
- There is resistance at 1.2987. Above, there is resistance at 1.3077
