The Canadian dollar was thoroughly thrashed last week. It wasn’t alone. The Australian dollar suffered a worse beating, shedding 2.12% against the U.S. dollar, followed by EUR/USD which dropped 1.64%.
The Canadian dollar plunged through significant support levels and shifted the longer term outlook to negative. The move was driven by external factors which included the European Central Bank monetary policy decision and the Federal Open Market Committee statement and outlook. Fed Chair Jerome Powell expressed a positive outlook for the U.S. economy and interest rates. His counterpart at the ECB, Mario Draghi, was rather dovish, triggering an explosion of U.S. dollar demand.
President Donald Trump was the maestro of this orchestra. He threatened to stick China with another $50 billion in tariffs and delivered on the threat on Friday. China said they would retaliate and they did. China targeted U.S. agricultural and oil imports.
U.S. tariffs on Canadian steel and aluminum come into play on July 1. Canada has responded with tariffs of its own. Trump may escalate the spat by targeting Canada’s dairy and agricultural industries.
The Organization of the Petroleum Exporting Countries is also undermining the Canadian dollar. The 174th (Ordinary) OPEC meeting takes place in Vienna this Friday. The previously announced production cutbacks and caps have accomplished their goal. Global crude supplies are back below their five-year average. Russia wants to increase production and Iran wants to keep things as they are. West Texas Intermediate (WTI) oil prices have dropped from their $72.95 U.S./barrel peak to a low of $63.62 on Friday. The prospect of lower oil prices is another Canadian dollar negative
There isn’t any critical Canadian dollar data until Friday’s Retail Sales and Consumer Price Index reports. If inflation and Retail Sales are higher than expected, it will give the Canadian dollar a reprieve. The Bank of Canada is widely expected to raise interest rates in July. Robust data would make it easier. Also, the recent drop in the value of the Canadian dollar allows the BoC to increase rates without adversely impacting export prices.
The annual ECB Forum on Central Banking in Sintra, Portugal starts today. Draghi and Powell are just two of the senior central bankers slated to speak. Traders will be on alert for any headlines and soundbites from this conference.
There isn’t any Canadian or U.S. economic data of note, slated today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians.
