Canadian dollar backpedals last quarter’s gains

Key Movers

The euro downtrend continued through trade on Wednesday moving nearer key psychological supports at 1.20, touching session lows at 1.2004. The single unit was driven lower as Italian bond yields and spreads fell sharply following ongoing political instability. Former European Central Bank President Mario Draghi has accepted a mandate to form a workable coalition and the next Italian government. The spread to German Bunds fell 9 basis points, and while inflation across the Eurozone rose the markets remain pessimistic about the growth opportunities across the common market. GDP is expected to retract sharply through Q1 as national lockdowns and slow vaccine roll out flatten hopes that normal economic activity will resume in the near term.The Australian dollar clawed its way back above 0.76, posting modest gains in what was otherwise a largely lackluster session. Moves across currency markets were mostly muted mirroring small gains across risk assets and equity markets. Positive earnings results and an uptick in US services performance helped foster risk lead gains and saw the AUD test highs at 0.7625. Our attentions now switch to tomorrow’s RBA statement on monetary policy for greater insight into Tuesday’s policy announcement. The decision to extend QE and commit to long-run lower interest rates has dampened demand for the AUD as expectations for an improved yield return wane.