The Canadian dollar has tested both sides of its USD/CAD range of $1.3280-1.3400 this week but was unable to break out in either direction.
Yesterday, better-than-expected Canadian inflation data sent USD/CAD into freefall, as prices dropped from $1.3338 to $1.3280 in a flash. Prices bounced back just as quickly. The Canadian dollar was still on the defensive when Toronto closed for the day, and they sank steadily in Europe and Asia trading.
Canada headline Consumer Price Index rose 1.6% year over year, in March, which was well above the 1.3% predicted. A lot of the increase was due to higher gasoline prices, but prices are moving in the right direction. Canada’s International Trade data for February was released simultaneously. It was far better than expected and got a bonus when the January Trade deficit was revised downward.
However, the trade result was a Canadian dollar negative as the 1.3% drop in exports suggests that the results will have a negative impact on Q1 Gross Domestic Product growth.
The Canadian dollar also suffered from broad U.S. dollar demand as positions were getting trimmed ahead of the long Easter weekend. Some European markets are closed today, Friday and Monday, although the majority just take Friday and Monday off.
The U.S. dollar closed with gains across the board against the major G-10 currencies yesterday and added to those gains in overnight trading. AUD/USD tried to rally after Australia posted stellar employment numbers but the gains were not sustained, and the currency pair fell, erasing all its earlier gains.
The Canadian dollar came under pressure in Europe after weaker than expected euro-zone data led to US dollar demand. Euro-zone and German Manufacturing Purchasing Managers Indexes were below forecast, which knocked EUR/USD for a loop. Traders ignored the fact that today’s data was a modest improvement over last months report. EUR/USD has been consolidating those losses in early Toronto trading.
The British pound dropped alongside EUR/USD even though UK Retail Sales data surpassed expectations. GBP/USD traders are fixated on Brexit and U.K. politicians' inability to decide among themselves what kind of Brexit they want.
The Canadian dollar came under pressure when West Texas Intermediate oil prices declined form $64.50 yesterday to $63.48/b overnight. The selloff occurred even after Energy Information Administration (EIA) reported US crude inventories decline last week. Pre-holiday weekend profit taking may help explain the move.
Canadian dollar traders are awaiting today’s February Retail Sales report. However, poor weather during the month may limit the data’s impact on trading.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
