The U.S. dollar is slowly inching higher against the major G-10 currencies, and that is putting pressure on the Canadian dollar. The greenback firmed yesterday ahead of the historical U.K. parliamentary vote on Brexit and continued to so, albeit somewhat erratically overnight. Prime Minister Theresa May’s Brexit plan was tabled in the House of Commons where all Members of Parliament voted on it. The plan was rejected in a spectacular fashion: 402 against and only 202 for. To make matters worse, Labour Leader Jeremy Corbyn tabled a vote of no confidence. If successful, it would bring down the U.K. government and could result in an election. The vote is happening now, but most reports suggest Corbyn will lose.
The historical nature of the U.K. Brexit vote captured the attention of FX markets. Many traders were sidelined, unwilling to take the risk of losing money because of a sharp swing in GBP/USD, impacting other currencies. They worried for nothing. GBP/USD opened in Toronto today, exactly where it closed yesterday.
The Canadian dollar drifted higher in Asia, alongside AUD/USD and NZD/USD after the People’s Bank of China (PBoC) injected a record amount of liquidity into the banking system. The action was purely a technical move rather part of a stimulus program and the gains were quickly erased.
The Canadian dollar is trapped in a USD/CAD range of $1.3100-$1.3400. The Bank of Canada’s shift to a cautious, somewhat dovish policy stance led to many economists pushing back their domestic rate hike forecasts. The first hike has been moved to the summer from March. The BoC is concerned about the impact of lower oil prices on inflation. December Consumer Price Index data is due Friday, and it is forecast to have declined 0.3%. However, December is reportedly the weakest month for data, and most of the weakness will be blamed on low crude prices. Another reason for the BoC’s reluctance to raise interest rates is because they fear an adverse impact on the housing market. They want more time to assess the effect of recent rate hikes.
Canadian dollar selling pressure is running into headwinds from the latest surge in oil prices. West Texas Intermediate (WTI) rose from $50.65/barrel yesterday to $52.49 overnight. Prices were supported by the American Petroleum Institute’s (API) weekly crude stocks report that showed oil inventories declined last week. Prices are also underpinned by rising hopes that the U.S. and China will agree on a trade deal. Also, the discount for Western Canada Select,(WCS) Alberta’s main crude export to WTI has narrowed further. It has fallen from $29.50 U.S./b at the end of November to $7.50/b as of January 14.
The Federal Reserve's Beige Book is the key U.S. data released today. The Canadian calendar is empty.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
