The Canadian dollar rallied on Friday. USD/CAD dropped $1.3328 to $1.3217 where it closed, and the spent the overnight session consolidating that move in a $1.3205-$1.3238 range.
Friday’s rally was sparked by hopes for positive developments from the China/U.S. trade talks which start today, Wall Street gains and news that President Trump decided to end the government shutdown, at least until February 15.
FX trading got off to a slow start in Asia, hampered by the closure of Australian markets due to a holiday. The New Zealand dollar picked up the slack and added to its Friday gains supported by the mildly better tone to risk. The Japanese yen traded sideways in a relatively quiet session. The currency was supported by steady to soft U.S. Treasury yields and the lingering effects of last week’s somewhat dovish Bank of Japan Policy monetary policy statement and expectations for a dovish Federal Open Market Committee (FOMC) statement this week. However, the prospect for positive developments on the US/China trade front limited gains. The Canadian dollar eked out small gains as it was supported by the firmer NZD/USD.
The risk of an unfavourable result from the upcoming Brexit vote in the UK parliament on Tuesday knocked sterling off its lofty perch. GBP/USD dropped from $1.3210 to $1.3143 in early Toronto trading as some traders booked profits after Friday’s 1.5% rally. Selling of GBP/CAD helped support the Canadian dollar
EUR/USD traded in a tight band. The single currency is under pressure after last week’s somewhat dovish press conference by European Central Bank President Mario Draghi. He predicted weaker than expected euro-zone growth and said the risks were to the downside. EUR/USD was also being weighed down by EUR/GBP selling. However, those pressures were offset by a somewhat improved risk tone on the back of the U.S./China trade talks. Also, traders were looking for a dovish statement from the Fed at this week’s Federal Open Market Committee meeting.
Oil price movements were erratic. West Texas Intermediate (WTI) rallied on Friday and touched $53.80/barrel. Profit taking and then the Baker Hugh rig count data at the end of the day triggered a sharp selloff which continued in the Asia and European sessions. WTI touched $52.53/barrel before finding support and inching higher. The plunge in oil prices caused the Canadian dollar rally to stall.
Canadian dollar direction will continue to be driven by broad U.S. dollar sentiment with Wednesday’s FOMC meeting key. FX traders are expecting a dovish result which suggests a “risk seeking” rally following the news could be limited
There isn’t any Canadian economic data due today. Traders will be looking for headlines from the trade talks and Brexit for guidance.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
