USD/CAD - Rising Oil Prices Lift Loonie

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The Canadian dollar spent the overnight session consolidating yesterday’s gains in a USD/CAD range of $1.3066-$1.3205. Significantly, it was the only commodity bloc currency to hold its own against the US dollar and steadily rising crude prices were the reason.

West Texas Intermediate (WTI) jumped to $56.58 U.S./barrel in early Toronto trading today. The gains were because of reports that China and the United States were making progress on the trade talks. Traders ignored the 1.3-million-barrel increase in U.S. crude inventories as reported by the American Petroleum Institute late yesterday afternoon.

The Australian dollar churned overnight, and the Canadian dollar largely ignored those moves. AUD/USD jumped to $0.7205 from $0.7160 after better than expected employment data. Australia added 39,100 jobs in January, all of which were full-time and easily beating the forecast for a gain of 15,000 jobs. The unemployment rate was unchanged at 5%. The AUD/USD rally was short-lived. Westpac Banking Corporation wrote a report predicting that the Reserve Bank of Australia (RBA) would cut rates in August and November. It also lowered its Gross Domestic Product growth forecast to 2.2% from 2.6%.

AUD/USD dropped on the news and accelerated lower when a Chinese port banned Australia coal shipments. AUD/USD plunged to $0.7087 on the news. China is Australia’s biggest customer for coal. The Chinese government is extremely annoyed at Australia over cyber-security issues and the cancellation of a visa for a prominent Chinese businessman. China’s move against Australia suggests Canada could suffer a similar fate because of the arrest of the Huawei CFO in Vancouver.

There was good news on the China/U.S. trade talks front, but it wasn’t enough to stem the negative sentiment towards the antipodean currencies. The U.S. and China reportedly agree in principle to a framework for a new trade agreement. The trade talks in Washington continue until Friday which reduces the risk that the tariffs on $200 billion worth of Chinese goods will rise to 25% on March 1. However, the FX market barely reacted to the news.

The minutes from the January 30 Federal Open Market Committee (FOMC) meeting were released yesterday afternoon. They didn’t offer any new insight except to remind traders that the Fed will be patient and rates could still rise in 2019.

There is a lot of U.S. economic data due today, highlighted by December Durable Goods Orders. They are expected to rise 1.7% (Nov. 0.7%) while the ex-transportation component rises 0.3% (previous -0.4%) Better than expected data would support the greenback and undermine the Canadian dollar. Other data releases include; Initial Jobless Claims, Existing Home Sales, and the Philadelphia Fed Manufacturing Survey
Canadian dollar traders will be waiting for Bank of Canada Governor Stephen Poloz speech at lunchtime.

Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians