– IEA warns of Q1 2022 oil glut

– UK employment data lifts GBPUSD

– US dollar opens mixed, CAD underperforms

USDCAD Snapshot: Open 1.2810-14, Overnight Range 1.2800-1.2825, Previous close 1.2800, WTI open $71.29, Gold open $1784.97

The Canadian dollar started today’s session as the weakest major G-10 currency since yesterday’s open in New York. The commodity currency bloc traded lower ahead of what could be a hawkish outcome for Wednesday’s FOMC meeting, but a somewhat downbeat International Energy Agency oil forecast exacerbated Canadian dollar selling.

The IEA December oil market monthly predicted that travel restrictions from the Omicron variant would reduce global oil demand in Q1 2022 by 600,000 barrels/day. They warned that crude will be over-supplied if producers continued to pump oil at current levels. On a happier note, they do not expect the glut to last beyond the first quarter, but that isn’t helping oil prices today. West Texas Intermediate fell from $72.95/barrel on Monday to $70.63/b overnight. Prices have inched higher in early NY trading.

The Federal Government and Bank of Canada jointly announced ta refreshed monetary policy framework yesterday. They reaffirmed their commitment to price stability saying, “The inflation target will continue to be the 2 percent mid-point of the 1 to 3 percent inflation-control range.”

They tweaked the mandate by adding an employment component to policy decisions. “The Government and the Bank also agree that monetary policy should continue to support maximum sustainable employment, recognizing that maximum sustainable employment is not directly measurable and is determined largely by non-monetary factors that can change through time.”

A cynic would note that the employment language provides policymakers with vastly increased “wiggle-room,” to help them justify any decision.

The changes did not have an impact on Canadian dollar trading.

FX markets are likely to trade sideways and in a choppy manner until tomorrow’s FOMC statement and economic projections are released. The US dollar index rally stalled below resistance in the 96.50 area. Prices retreated, but the longer-term uptrend is still intact. Data, including today’s US PPI report, are just distractions, and the impact on FX, if any, will be fleeting.

EURUSD drifted lower in Asia then soared in Europe, rising from 1.1267 to 1.1323. Traders are awaiting the FOMC and the ECB meetings. ECB officials previously announced the end of the PEPP program, which is modestly hawkish news but then muddied the waters by talking about increasing existing Asset Purchasing Programs in the wake of the Omicron variant.

GBPUSD rebounded from an overnight low of 1.3193 to 1.3255 in NY but is still below yesterday’s peak of 1.3267. UK ILO unemployment rate fell to 4.2% in the 3 months ending in October, a modest improvement from the 4.3% previously.

There are no Canadian economic reports today.

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