The Canadian dollar opened in Toronto this morning with a positive tone, sparked by improved global market risk sentiment. For the past few days, global traders have sought risk aversion trades and bought U.S. dollars, Japanese yen, Swiss francs and gold. The Canadian dollar weakened in that environment.
Markets were concerned about rising tensions between Saudi Arabia and the United States over the disappearance of a Saudi national who was also a Washington Post journalist. Both nations traded threats and barbs. Traders became concerned that the Saudis would use access to oil to combat U.S. sanctions or penalties. The dispute has been tabled for the time being to allow Saudi officials to investigate and then provide an explanation.
There were other issues. The U.K./E.U. Brexit negotiations were not progressing well. The U.K. Brexit plan was supposed to be ready for the E.U. Summit to review and then hold a special Brexit meeting in November. None of that happened. The Irish border is a stumbling block and finding a solution that appeals to Ireland, the E.U. and the U.K. is difficult. Also, there is a lot of debate about whether Prime Minister Theresa May would be able to get her Brexit plan through Parliament.
Italy’s budget plan and its rejection by the European Union led to a EUR/USD selloff, which also fueled broad dollar demand against the G-10 major currencies, including the Canadian dollar.
A slide in WTI oil prices from $75.20 U.S./barrel last week to $68.50/b yesterday contributed to the negative sentiment on the Canadian dollar.
The minutes from the September 26 Federal Open Market Committee meeting that were released on Wednesday afternoon gave the U.S. dollar a bit of a boost. They suggested the Fed was talking about raising interest rates higher than previously expected. The spread between Canadian and U.S. two-year bonds widened which led to Canadian dollar selling.
This week’s global market angst may have had a lot to do with the lack of top-tier U.S. economic data. The empty economic calendar meant traders were looking for other reasons to justify trades. Despite all the FX price volatility, the U.S. dollar continues to be locked within well-defined ranges against the major currencies.
Canadian dollar traders are looking ahead to this morning’s Retail Sales and inflation reports. Canadian Consumer Price Index is forecast to be flat (0.0% m/m) in September while the more important Core CPI rises 0.2% m/m. (Previous 0.1%.) August Retail Sales are expected to rise by 0.3%, the same as July’s result. If the data is higher than expected, the Canadian dollar will rally and retest USD/CAD support at $1.2950. If the data is weaker than expected, a retest of USD/CAD resistance at $1.3090 is in the cards.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
