The Canadian dollar took a turn for the worse on Friday. The U.S. dollar was in demand due to "profit-taking" ahead of the weekend and ongoing concerns about a prolonged U.S. government shutdown and fears ahead of Tuesday’s U.K. Brexit vote. The Canadian dollar came under added pressure after oil prices started to slide and finished the session as the worst performing G-10 major currency. West Texas Intermediate (WTI) dropped 2.5% on Friday while the Canadian dollar fell 0.61%.
Asia shifted to risk aversion trades after China trade data was worse than expected. China said December exports dropped 4.4% and imports fell 7.6%. Forecasters were predicting that exports would rise 3.0% and imports would climb 5%. However, FX activity was understated as Japan was closed for "Coming of Age Day."
Trading activity was also hindered by a shortage of actionable economic reports from Europe, U.K. and the U.S. EUR/USD drifted quietly in a $1.1441-$1.1485 range and traded near the bottom of that range after November euro-zone Industrial Production data was -1.7%, a tad worse than the -1.5% forecast.
GBP/USD traded in a similarly narrow range of $1.2820-$1.2877. The market is extremely short of sterling. Prime Minister Theresa May’s Brexit plan is expected to be voted on Tuesday. She is widely expected to lose the vote, which doesn’t give traders an incentive to buy sterling. There is talk that the European Union would consider extending the March 29 deadline for Brexit.
Oil prices got the lion’s share of credit for boosting the Canadian dollar last week, and they get the blame for its selloff as well. WTI touched $53.27 U.S./barrel on Friday morning and hit $50.46/barrel in European trading today. A rash of profit taking and the China trade data drove the selling. Traders viewed China’s weak import numbers as evidence of lower demand for oil. That sentiment contradicts comments from Saudi Arabia oil Minister Khalid al_Falih. He said "The global economy is strong enough, I’m not too concerned. If a slowdown happens, it will be mild, shallow and short. The fundamentals of oil demand are sufficiently strong, and the oil market will not be impacted. On the supply side, we are vigilant to take appropriate response if there is an impact on demand."
FX markets sentiment was also risk averse because of a tweet by U.S. President Trump that appeared to threaten NATO ally Turkey. Trump tweeted: "Starting the long overdue pullout from Syria while hitting the little remaining ISIS territorial caliphate hard, and from many directions. Will attack again from existing nearby base if it reforms. Will devastate Turkey economically if they hit Kurds. Create 20-mile safe zone… Likewise, do not want the Kurds to provoke Turkey. Russia, Iran and Syria have been the biggest beneficiaries of the long term U.S. policy of destroying ISIS in Syria - natural enemies. We also benefit but it is now time to bring our troops back home. Stop the ENDLESS WARS!"
There isn’t any American or Canadian economic data available today. U.S. equity futures point to a flat to slightly lower open this morning. Canadian dollar direction will be governed by oil price movements and equity price action.
