US yields moved higher last week, particularly the 10-year treasuries, which rose as high as 1.6% per cent. This move boosted the US dollar against the major currencies, and USD/CAD climbed close to 1% last week. However, bond yields have since stabilised. Yields on the US 10-year treasuries are back around 1.40%. I expect bonds will continue to fluctuate and cause further in the currency markets. The US dollar index fell below support at the 90-level late last week, but the greenback has flexed some muscle and the index is currently at 91.08.
The US economy continues to show signs of recovery, and expectations are high that first-quarter growth will be strong. A major driver behind economic growth is consumer spending, and the January Personal Spending release came in at 2.4%, its best read in seven months. Personal income levels were also up sharply, but levels still remain muted. The Core PCE Price Index, which is believed to be the Fed’s preferred gauge, remained at 0.3%, a level not exceeded in over 10 years. There are concerns that the massive stimulus program of USD 1.9 trillion could cause higher , and with it the danger of the US economy overheating.
After strong gains by USD/CAD late last week, we are seeing a reversal on Monday, with the pair losing ground. Resistance remains strong at 1.2787, as this line has held since the first week in February. Above, we find resistance at 1.2842.
USD/CAD is putting pressure on support at 1.2632. If the pair breaks below this line, it could fall sharply, with no support until 1.2532. This is followed by a swing low at 1.2468, which the pair touched late last week.