The Canadian dollar inched higher in a subdued overnight FX session. FX traders were distracted by political developments in Washington while the bided their time awaiting the release of the minutes from the August 1 Federal Open Market Committee (FOMC) meeting.
President Trump suffered another setback yesterday. The President’s former campaign manager was convicted on eight charges of bank and tax fraud. Shortly afterwards Trump’s former lawyer, Michael Cohen, pleaded guilty to campaign finance charges. Making matters worse, Cohen implicated Trump.
However, according to the Washington Post, the U.S. Constitution does not allow for the indictment of a sitting president. Trump could still be impeached, but the bar is set very high for such an action. Traders are right to ignore the drama.
The more significant risk to the Canadian dollar stems from the current North American Free Trade Agreement negotiations. Canada has been excluded from the recent U.S./Mexico talks, and there are rumours that the two countries have reached a bilateral deal. If correct, Canada’s bargaining position is severely weakened. The evidence of that was on display yesterday. The U.S. slapped 25% tariffs on welded pipe from Canada which is used for pipelines.
However, the Canadian dollar ignored the NAFTA news and inched higher in concert with broad U.S. dollar weakness across the G-10 currency spectrum. The U.S. dollar continues to be under pressures from President Trump’s complaints about the Fed’s interest rate policy as well as his accusations of currency manipulation by China and the European Union.
FX activity was a tad quiet overnight. The FOMC minutes will be released this afternoon. Traders are a little nervous in case the minutes show Committee members concerned about the impact of U.S. tariffs on domestic growth expectations.
Canadian dollar traders are keeping an eye on oil prices. The correlations between USD/CAD and WTI oil price movements have been tenuous of late, but prices are still a trading concern. WTI oil prices peaked at $75.23/barrel on July 3. USD/CAD traded at $1.3200 on the same day.
Since then WTI oil prices have dropped. On August 15 the bottomed out at $64.60/b. That day, USD/CAD traded at $1.3100. One of the reasons for the disconnect is that Canada’s benchmark crude oil export, Western Canada Select (WCS) trades at a discount to WTI due to transportation limitations. On August 20, the discount was $39.79/barrel Canadian
The Canadian dollar may be the recipient of negative economic news today and Friday. This morning Canada Retail Sales are forecast to drop 0.1% in June, well below the 2.0% gain posted in May. The combination of NAFTA uncertainty and soft economic data should limit Canadian dollar gains.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
