The Canadian dollar inched higher overnight but is on track to close out the week with a loss. The currency was undermined by a series of week economic reports including disappointing Retail Sales data on Wednesday as well as widespread U.S. dollar demand against the major currencies.
The U.S. government shutdown started December 21, and today, 35 days later, Republicans and Democrats do not appear ready to make a deal. The shutdown has impacted FX trading, albeit mildly because key economic reports from the Bureau of Economic Analysis and the Census Bureau have been delayed. When a deal is reached, it could spark a bit of a relief rally in the so-called "risk currencies", which includes the Canadian dollar.
FX traders were distracted by headlines from the annual World Economic Forum in Davos. This year’s version is lacking in drama which is largely because U.S. President Trump did not attend. Famed currency trader George Soros tried to fill the void. He called China’s Xi Jinping "the most dangerous opponent of open societies." China wasn’t amused, and a spokesperson said that Soros' remarks were meaningless and not worth refuting.
The overnight session was not without drama, which helped give the Canadian dollar a bit of a lift. The U.K.'s Sun newspaper reported that Ireland’s Democratic Unionist Party (DUP) had privately agreed to back Prime Minister Theresa May’s Brexit plan, now being called Plan B.
However, there isn’t a formal agreement, and the negotiations centre around the treatment of the backstop plan. GBP/USD rallied from $1.3060 to $1.3171. Canadian dollar gains on improved risk sentiment were offset by GBP/CAD buying.
The U.K. news helped EUR/USD grind higher. The single currency climbed from $1.1301 to $1.1346 in early Toronto trading, further evidence of the improved risk tone. Traders ignored a disappointing German IFO survey that showed a decline in the Business Climate portion. The euro came under pressure on Thursday after European Central Bank (ECB) President Mario Draghi said that the risks to euro-zone growth were to the downside.
The Canadian dollar is scratching out support from yesterday’s surge in WTI oil prices which occurred despite a large increase in U.S. crude inventories. The Energy Information Administration said that crude inventories rose 7.77 million barrels in the week ending January 18.
Wednesday, the American Petroleum Institute said crude stocks rose 6.66 million barrels. That news, coupled with rising U.S. shale production would typically have sent WTI oil prices tumbling. However, the U.S. government is threatening to impose sanctions on Venezuela oil which supported WTI prices.
There is another data void today, so equity and U.S. dollar movements will steer price action
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
