Inescapable USD Pattern

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A pattern continues to repeat in US dollar trading. Positive headlines on economic data give it a lift and then it slowly bleeds the gains away. We have seen it three times now with CPI, the Fed minutes and most recently with the Markit PMIs. The unwind from the latter began on Monday as the dollar sagged on a positive risk tone' yields remain stubbornly low. Sparking some dollar outflows is that global covid cases are turning lower, including in India and Brazil. We're still in the timeframe where the US is open and most of the world is shut, but that line will blur imminently.

One spot to watch particularly closely is oil. An Iran deal could be struck as early as today but it's likely priced in. Crude has rallied hard in the past two days after three days of selling on Iran headlines. The focus is increasingly shifting to the demand side and the likelihood of a boom in automobile driving in the months ahead followed by a resumption of business travel later in the year.

Oil isn't necessarily a great economic barometer because OPEC+ can change everything but it's key to the inflation debate. A further leg higher in crude would signal a new phase in price hikes that could shake global central bankers from their dovish perch.

Bank of Canada governor Tiff Macklem has already seen enough. On Monday, he explicitly said that tapering is the right move for the economy. The loonie has been the best performer so far this year and it's not tough to see why: We're in the beginning of the economic cycle and commodities have boomed.

Canada was on holiday Monday but will return to a busy day of trading on Tuesday. US data includes a series of home prices indexes and new homes sales along with the Richmond Fed and consumer confidence.