The Canadian dollar has been on a roller-coaster ride, a ride that is being powered by wildly fluctuating oil prices. The price moves have been amplified by reduced market liquidity because of the major U.S. Thanksgiving holiday, and the poor liquidity will continue today.
West Texas Intermediate (WTI) the North American benchmark price for crude oil, traded at $57.90/barrel last Friday. This morning it hit $51.75/b, a 10.6% drop. In between, intraday trading price action saw price swings of over 5% on some days which triggered intraday Canadian dollar volatility as well. Oil traders are becoming more and more convinced that the 2019 oil market will have an excess supply because of slowing global growth. However, this week’s price action should be discounted because of a lack of economic data and poor trading conditions because of the U.S. holiday.
FX traders are leaning towards risk aversion sentiment because of growing fears that the U.S. and China will not resolve their trade differences. The U.S. may impose another $267 billion of duties on Chinese imports in January. At the same time, President Trump and Chinese President Xi Jinping are scheduled to meet in Argentina at the end of next week, during the G-20 summit. Both leaders are making the right noises.
Yesterday, Trump said he hoped he could make a deal while a Chinese official wanted "a mutually beneficial agreement."
FX market liquidity will improve next week, but there is no shortage of risks for traders. The E.U./U.K. Brexit draft agreement will be centre stage. The E.U. Council needs to approve the terms, and then all 27 member states must agree. It won’t be easy. Spain is protesting how Gibraltar is treated under the new terms. One negative vote could scuttle the entire agreement. Even if the E.U. agrees to the terms, the Brexit deal needs to be passed by the British House of Parliament.
There is a lot of top-tier data being released on Friday of next week. The data includes Canada Gross Domestic Product, euro-zone inflation, and unemployment. It is also month-end, which means monthly portfolio re-balancing flow. At the same time, traders will be on full alert for headlines from the G-20 summit. In addition, Brexit, and E.U./Italy budget talks will overhang markets.
Canadian dollar traders were awaiting this morning’s Canada Retail Sales and Inflation reports. Retail Sales were forecast to rise 0.1% in September compared to August’s 0.1% drop. However, falling gas prices could weigh on the results. October CPI was expected to rise 0.1%, a vast improvement over September's 0.4% decline.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
