The Canadian dollar is directionless, and is not alone. G-10 currencies have traded sideways inside relatively narrow ranges since the start of the week due to looming event risk. There are three major concerns for traders coming. The first comes from Great Britain. U.K. politicians are voting on Prime Minister Theresa May’s Brexit Plan B, which most believe is not a whole lot different from the first Brexit plan which was decisively voted down. There are many wrinkles associated with Plan B including a couple of amendments which are being voted on.
The first, known as the Brady Amendment, proposes a change in the Irish backstop agreement with something called "alternative arrangements. The other is the Cooper-Boles Amendment seeks to delay Brexit beyond the March 29 deadline. There are other proposed amendments as well which means the results of the votes may not be known until somewhere around noon EST. There is a risk that anything that delays or reduces the risk of a no-deal Brexit will lead to buying of sterling against the U.S. dollar and the Canadian dollar as well.
The second major risk for traders comes from America. The U.S. Justice Department is accusing China’s Huawei Technologies and its CFO Meng Wanzhou of stealing trade secrets from the U.S. and violating sanctions against Iran. The announcement came on the eve of China Vice Premier Liu He’s arrival in the U.S. to begin trade negotiations. It certainly sets the stage what will likely be acrimonious talks. Canada -- and by default, the Canadian dollar-- is caught in this mess because it was Canada that arrested Meng. China is annoyed at the Americans and Canada for that action.
A lack of progress with the negotiations could lead to a shift to safe-haven assets, and the Canadian dollar would suffer.
The third major concern for FX traders is Wednesday’s Federal Open Market Committee (FOMC) meeting. The Fed is expected to leave rates unchanged and to deliver a dovish statement. Fed Chair Jerome Powell’s bungling of the FOMC message at the December 21 press conference puts more emphasis on Wednesday’s press conference. He is likely to be asked why he changed his tune between December 21 and January 4. Even though a dovish outcome is expected, the Canadian dollar could still grind higher.
The Canadian dollar has also been bounced around by erratic oil price swings. The Americans imposed new sanctions on Venezuela oil to spur President Maduro into calling new elections. The penalties are being justified as necessary to "protect U.S. strategic interests." The action could spark risk aversion trading and undermine the Canadian dollar at the same time
There isn’t any Canadian data and only minor U.S. economic data on tap today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
