The Canadian dollar took a turn for the worse yesterday. The break below a couple of critical support levels has the loonie on the verge of re-visiting its 2019 low. If it falls below that level, the 2018 bottom of 73.15 cents to the U.S. dollar may be seen. However, all is forgiven this morning. Canada created 66,800 jobs in January, and the Canadian dollar soared. Today’s data will go along way in keeping the current trading range intact.
The Canadian dollar is not the only currency under pressure. Its fellow members of the so-called commodity currency bloc have also suffered.
AUD/USD was thrashed after the Reserve Bank of Australia (RBA) turned dovish and dropped the possibility of an interest rate cut into the mix. The Reserve Bank of New Zealand didn’t quite talk about rate cuts. Instead, their concern about slowing global growth could lead to a downgrade of New Zealand growth forecasts, pushing out an expected rate increase into the second half of 2020.
The Canadian dollar saw a renewed selling pressures yesterday when West Texas Intermediate oil prices plunged from $54.14 U.S./barrel to $51.83/b. Prices have since drifted higher but remain trapped within a $50.50/-$55.50/barrel trading band. Canadian dollar price action has mirrored oil price moves for the past month.
The Canadian dollar got sideswiped by a surge in U.S. dollar demand yesterday, which stemmed from developments in Great Britain. Sterling prices collapsed on a dovish shift by the Bank of England at Thursday’s policy meeting. They said: "U.K. economic growth slowed in late 2018 and appears to have weakened further in early 2019. This slowdown mainly reflects softer activity abroad and the greater effects from Brexit uncertainties at home."
They also interjected the possibility of a rate cut. Comments from a senior European Union official mocking the result of the U.K.’ Brexit plan. Didn’t help sentiment. U.K. Prime Minister Theresa May is on a whirlwind tour of Ireland and the E.U., meeting with officials to try to reopen the Brexit her Brexit deal. E.U. officials are united in opposition to her request. The risk of a "no-deal" Brexit has escalated. However, there are still 49 days until Britain’s membership in the E.U. officially terminates. That date can and will most likely be extended. However, U.S. dollar buying against Sterling helped to fuel Canadian dollar selling on general risk aversion.
EUR/USD selling pressures emerged on Thursday after another wave of weaker than expected Eurozone economic data. US economic growth is handily outperforming that of the euro-zone which has underpinned the greenback. The European Central Bank stuck to a dovish monetary policy bias at their meeting two weeks ago, and ECB President Mario Draghi reiterated its dovish outlook at his press conference.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
