Canadian dollar traders ignored another steep plunge in crude oil prices and continued to buy the currency. West Texas Intermediate, the North American benchmark price for oil, traded at $59.72 U.S./barrel last Thursday. Four days later, WTI prices are probing support at $52.50/b. The 12.1% drop was fueled by escalating U.S./China trade tensions, elevated U.S. crude inventories and news that Russia is opposing the extension of production cuts beyond the end of June has exacerbated the down move.
China released a "White Paper" titled China’s Position on the China-U.S. Economic and Trade Consultations. It blamed the U.S. for the collapse in the trade talks. The Office of the U.S. Trade Representative and the Department of Treasury issued a joint statement to refute China’s claims.
It opened with the following: "The United States is disappointed that the Chinese have chosen in the 'White Paper' issued yesterday and recent public statements to pursue a blame game misrepresenting the nature and history of trade negotiations between the two countries."
To oil traders, China/U.S. war of words, suggests the trade dispute will not be resolved very quickly, which would lead to slowing global growth and by default, less demand for crude.
Canadian dollar traders ignored the oil market and took their direction from broad U.S. dollar moves. The U.S. retreated against all the G-10 major currencies yesterday and managed to hang on to those gains overnight.
The U.S. dollar selloff is modest and was sparked by concerns that the Federal Reserve's next move would be to cut interest rates. St Louis Fed President James Bullard suggested that the economic risk posed by trade tensions and low inflation may lead to lower rates. He said "A downward adjustment of the policy rate may help re-center inflation and inflation expectations at the 2% target. That comment knocked U.S. Treasury yields even lower and fueled broad U.S. dollar selling.
EUR/USD retraced early gains when euro-zone inflation data missed expectations. May Consumer Price Index rose 1.2% compared to 1.7% in April. EUR/USD dropped from $1.1276 to $1.1252 on the news.
GBP/USD traded choppily. It fell from $1.2684 to $1.2643 when May Construction Purchasing Managers' Index missed its forecast. (Actual 48.6 vs forecast 50.5) Prices have rebounded in early Toronto trading.
There aren’t any top-tier Canadian or U.S. data reports released today. However, traders are looking forward to a speech by Fed Chair Jerome Powell this morning. He is speech is titled "Monetary Policy Strategy, Tools, and Communication Practices." Traders will be paying close attention to see if he is leaning toward the St Louis Fed view or if he maintains his view that recent weakness is transitory.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
