Canadian Dollar Rally Stalls at Resistance

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The Canadian dollar soared yesterday and added to those gains during the Asia and European trading sessions.  “FX traders began buying Canadian dollars and selling US dollars in anticipation of a successful renegotiation of the North American Free Trade agreement being announced today.” Said Rahim Madhavji, President of KnightsbridgeFX, a currency exchange company that helps Canadians get better exchange rates than the banks.

US Speaker of the House Paul Ryan drew line in the sand, saying May 17 was the last possible date for a successful NAFTA deal being able to be reviewed by the US Congress in 2018.US mid-term elections in November could upset the political balance.  Mexico elections are another factor.  Their general election is July 1.  A new government could have a different agenda than the current negotiating crew, making a deal harder to achieve.

USDCAD found a floor at 1.2751 overnight, a level that is well supported by technicals.  If prices trade below that level, USDCAD losses could extend to 1.2650.

Rising oil prices will give a bit of a cushion for the Canadian dollar against US dollar strength.  West Texas Intermediate (WTI) oil climbed further overnight and is trading at $72.16/barrel, a price last seen in November 2014.  Middle East tensions, the threat of new sanctions against Iran and lower US crude inventories all contributed to the WTI rally.

FX traders will have to digest US Philadelphia Fed Manufacturing Index and Jobless Claims data, both of which are expected to be robust and underpin the greenback.  Traders will also be keeping a close eye on 10-year US Treasury yields, leery of a decisive break above 3.10%.

Overnight, FX markets were erratic but stayed within recent levels and opened in Toronto close to yesterday’s closing prices.

USDJPY soared as Treasury yields climbed and touched 110.73 where it is now trading.

The Australia employment report gave AUDUSD a short-lived lift to 0.7545 but the weight of AUS/US interest rate differentials drove prices lower.

The New Zealand government budget was greeted positively but the good feelings quickly faded and prices retreated to the bottom of its 0.6880-0.6936 range.

EURUSD zig-zagged in a narrow range.  Rising Treasury yields and the risk of strong US economic data continues to put downward pressure on EURUSD.

Sterling chopped about in a 1.3474-1.3568 range with Brexit drama weighing on the currency.  The UK government dismissed a report that it would consider staying in the EU customs union.

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