The Canadian dollar has been sideswiped after a rash of negative news. Any residual support from the October 24 Bank of Canada (BoC) interest rate hike and suggestions that the pace of future increases could be accelerated has been fully dissipated.
Traders have shifted their focus to the U.S. interest rate outlook and oil prices. They do not like what they see. Yesterday, the Federal Open Market Committee policy meeting statement was released. Almost no one expected the Fed to raise interest rates and they didn’t. There were minor "tweaks" to the language in the statement. The statement said that the unemployment rate declined while the September statement just said unemployment was low.
The statement downgraded its reference to business fixed investment from "grown strongly" to "moderated from its rapid pace." That’s it. But it was enough to spook short-term U.S. dollar bears into unwinding their positions. The greenback rallied across the board, and the Canadian dollar suffered along with other G-10 majors.
The Canadian dollar has other issues as well. Oil prices were in free-fall, and the loonie got hammered. West Texas Intermediate (WTI) dropped over 7.4% since Monday, plunging from $60.05/U.S.barrel to an overnight low of $59.30. A perfect storm of negative news weighed on prices. Earlier this week, the Energy Information Administration (EIA) reported US crude production was a record 11.3 million barrels per day. At the same time, they said U.S. crude inventories continued to rise. The White House announced that eight countries would be granted waivers from U.S. penalties and could continue to import Iranian oil. Those countries included Iran’s biggest customers. (China and India) That news served to negate concerns of an oil price spike due to the loss of Iran’s production.
Oil news got worse for Canada late yesterday. A judge in Montana blocked President Trump’s permit that allowed TransCanada Pipeline to proceed with its Keystone XL Pipeline project. The judge effectively halted all progress until an updated environmental review could be completed.
Concerns about the ratification of the new United States Mexico Canada Agreement (USMCA) on trade sparked Canadian dollar selling yesterday. A Reuters news report claimed that Canada and the U.S. were at odds because the American’s were attempting to alter the text of the document from what had been agreed. Senior Canadian officials downplayed the news, suggesting it was a common practice.
The Canadian dollar is ending the week as the weakest G-10 major currency compared to the US dollar. The short-term outlook is for additional U.S. dollar gains which will keep the Canadian dollar on the defensive for the next few days.
This morning’s U.S. economic data releases could spark renewed Canadian dollar selling if the Michigan Consumer Sentiment and Producer Prices Indices beat expectations.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
