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The Canadian dollar never recovered from the mildly disappointing employment report on Friday. Canada lost 1,100 jobs in April rather than gaining 17,500 which was forecast. “Traders ignored the fact that the unemployment rate stayed at its 40-year peak of 5.8%.” Said Rahim Madhavji, President of KnightsbridgeFX, a currency exchange company that helps Canadians get better exchange rates than the banks. However, the USD/CAD rally stalled below resistance at 1.2805.
The Canadian dollar was largely ignored in overnight markets, with USD/CAD trading in a 1.2767-1.2792 range. It started the Toronto session with a slight downside bias as prices ticked lower to 1.2764 USD/CAD.
The Canadian dollar is in for an interesting week although all the excitement comes on Thursday and Friday. Thursday is the “line in the sand” day for the North America Free Trade Agreement renegotiations to reach an agreement. If not, according to Reuters, there will not be enough time in the current 2018 Congress session for members to review the changes. The 2018 Congress could have a different composition. If an accord is reached, the Canadian dollar will soar. It will sink on a failure. The Canadian dollar outlook will depend on how the NAFTA deal unfolds.
Friday, Statistics Canada releases March Retail Sales which are forecast to drop 0.1%.. Retail Sales, ex-autos are expected to rise 0.3%, the same as in February. Canadian inflation data is released at the same time. April CPI is expected to rise 2.6%, year over year. The Canadian dollar may derive some support from a gain, but the Bank of Canada expects inflation increases to be temporary.
The Canadian dollar is also getting a little support from high oil prices. WTI oil is currently trading at $70.81, supported by Venezuela production issues, and speculation of supply disruptions from new US sanctions on Iran. Price gains were tempered by Friday’s Baker-Highs rig count showing 13 new rigs in the past week.
The short-term Canadian dollar technicals are modestly bullish as well, suggesting a move below support at 1.2740 would lead to tests of both the 100 and 200-day moving averages, in the 1.2680-1.2640 area.
Elsewhere, the US dollar retreated slightly in a dull overnight session. There wasn’t any actionable economic reports in Asia, Europe or the United Kingdom to provide direction.
EURUSD continues to drift higher after touching 1.1825 last Tuesday. However, the rally is merely a correction while prices are below 1.2040. GBPUSD is trading in a similar fashion. It has risen from 1.3460 to 1.3605 this morning, looking to test resistance in the 1.3660 area. USDJPY is benefitting from the rise in US 10 year Treasury yields to 2.98%. If those yields rise above 3.0%, USDJPY will revisit 110.00.
There isn’t any economic data of note due today. Traders will look to China/US trade headlines and Wall Street moves for direction.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians.
