Resurfacing tensions between the US and China via the Taiwan route are throwing another curve at a very frustrating currency market that can’t seem to hold a steady direction from time zone to time zone.

Canadian dollar gets clobbered

President Biden’s “Buy American” initiative clobbered the Canadian dollar overnight.

Bay Street traders were caught wrong-footed long the Lonnie on the US stimulus infrastructure impulse which had expected to be a boon for Canadian commodity exports along with Made in Canada engineering and building technology.

But ‘Buy America” has walked back some of the economic gusto and for currency market concerns might give the Bank of Canada (BoC) some food for thought regarding a tapering decision.

Euro under pressure

The EURO suffered an economic reality check when the Ifo missed expectation after German companies’ sentiment soured markedly against the background of further lockdown measures. While the fall in the service sector was not a shocker, the sharp drop in expectations caused concern.

While currency traders are continually viewing the “jab charts” which compounded matter for the EURO, hopes for a quick rollout of vaccines seems to have faded a bit, delaying an easing of government restrictions.

The Ringgit

The ringgit teetered after the local government warned of growing economic risk. So, with most of the rate cuts bets paring back in the wake of BNM hold the course policy decision, concerns around the economic impact are seeing rate getting repriced again.

And compounding matters, USDAsia pairs are turned a bit higher. Overall, the latest ranges traded across pairs remain intact as flows continue to be two-sided in the outright space.

But it is worth keeping an eye on the tensions between the US and China over Taiwan.

Gold gave up some ground

Gold conceded ground to stronger dollar overnight but remains bid against escalating US-China tensions over Taiwan. Gold is struggling to break out. Most short-term fundamentals suggest upside from here, but extended speculative positioning is acting as a drag.

We will see what progress is made on the US USD1.9 trillion fiscal stimulus package during the remainder of the week. Presumably, the smoother it passes, the more favourable for gold.

On the central bank front, the highlight is the FOMC decision. The FOMC meeting should be gold supportive, but not new news. Robust GDP data could weigh on gold if yields react higher.

FX and Gold market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi