The Canadian dollar is getting a bit of support from rising oil prices. West Texas Intermediate, (WTI) the North American benchmark price for crude oil dropped from $71.35 U.S./barrel on September 4 to $67.90/b on September 8. Since then prices fully recovered the losses fueled by fears that Hurricane Florence and ongoing concerns that U.S. sanctions on Iran would disrupt supply, especially in the face of large drawdowns in U.S. crude inventories. WTI prices have dipped below $70.00/b today but remain well above August’s lows and are giving the Canadian dollar a modicum of support.
The Canadian dollar got an added lift yesterday on positive news about the U.S./Canada trade talks. Numerous reports suggesting that Canada had given in to U.S. demands for access to the domestic dairy market fueled Canadian dollar demand. The rumours began on Tuesday, and since then, USD/CAD has dropped from $1.3170 to $1.2980 yesterday.
Additional Canadian dollar gains from yesterday’s low may be hard to achieve as there isn’t any evidence that Canada’s concessions on the dairy file are enough to satisfy the Americans. There hasn’t been any mention of the other stumbling blocks which are the dispute resolution mechanism and cultural protection.
Foreign Minister Chrystia Freeland is not even in Washington now which is arguably a sign that the negotiations are not even close. U.S. Trade Representative Robert Lighthizer is getting busy with Japan and China trade talks, which may be another barrier to a quick trade resolution.
FX markets were patiently awaiting the results of the Bank of England (BoE) and European Central Bank (ECB) policy meetings this morning, which contributed to very quiet FX trading overnight.
The BoE did as widely expected and left interest rates unchanged. The statement was close to expectations. The BoE is concerned about downside risks to global growth from emerging markets and the US/China trade spat. GBP/USD rallied, dipped and is back to unchanged after the news.
The ECB followed in the BoE’s footsteps. They left interest rates unchanged and confirmed that non-standard monetary policy measures would end in December. There was a school of thought that the purchases would be extended due to the Turkey crisis.
Emerging markets were in the spotlight thanks to Turkey’s central bank. Turkey raised interest rate 6.25% to 24% to combat the falling Turkish lira and rising inflation.
US inflation data is the marquee economic release this morning. August Core Consumer Price Index is forecast to be unchanged. The Canadian data consists of the New Housing Price Index. FX traders will be awaiting further information on the USD/CAD trade discussions.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians