The Canadian dollar is on the defensive. A host of external influences have weighed on the currency in the past few months, and it has paid the price, losing as much as 6.9% of its value against the U.S. dollar since the middle of April.
The Canadian dollar’s litany of woes has been well-documented. They include fears for the demise of the North America Free Trade Agreement, U.S. tariffs and threats of tariffs on Canadian imports, escalating U.S. trade tensions with the European Union and China and widening USD/CAD interest rate differentials.
However, there are signs that the Canadian dollar may have found a temporary floor. USD/CAD spiked to 1.3380 on June 22 after weaker than expected domestic retail sales and inflation reports but quickly retreated from the peak. Since then prices have been unable to break above $1.3330. At the same time, the U.S. dollar is struggling to extend gains against the rest of the G-10 majors with rallies against euro and sterling running out of steam.
Oil prices are steady to firm. West Texas Intermediate is trading at a still lofty, $68.20/barrel which serves to provide a modicum of support for the Canadian dollar, or at the very least, cushion downside pressure. Trade sanctions against Iran and production outages in Venezuela will help underpin oil prices and by default the Canadian dollar
Traders are nervously awaiting developments on Wall Street after yesterday’s large fall. White House Director of Trade Policy Peter Navarro accused equity traders of "over-reacting" to reports that the U.S. administration was planning on restricting foreign investment. In fact, he denied that was the case. Global equity indices were mixed in overnight trading. The Nikkei 225 finished flat while the rest of the major Asia indices were in negative territory. European bourses have posted gains, but U.S. equity futures suggest a negative opening on Wall Street.
Top-tier economic data from Canada and the U.S. has been in short supply this week, and that will continue to be the case today. Wednesday, Bank of Canada Governor Stephen Poloz delivers a speech in Victoria, B.C. It is titled "Let Me Be Clear: From Transparency to Trust and Understanding." There is a Q & A session afterwards. Traders will be paying close attention to any comments on the economy and how the current state of trade has impacted his interest rate outlook. Bullish sounding comments will give the Canadian dollar a much-needed boost.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians.