The Canadian dollar may have found a short-term floor yesterday after hitting a ceiling on Friday. USD/CAD failed to extend gains above $1.3330 on Friday and this morning’s break of intraday support at $1.3260, suggests renewed selling towards the February 1 low of $1.3068. Domestic issues did not have anything to do with the renewed demand for Canadian dollars.
The catalyst was a global improvement in general risk sentiment triggered by a headline during the Asia session, suggesting that the U.S. Congress came to an agreement on border security funding. Equity markets rallied as did AUD/USD and USD/JPY. The reaction was a tad understated in Europe. The details of an "agreement in principle" by the U.S. House and Senate provide $1.375 billion for 55 miles of fencing plus an additional $1.7 billion for border security. If successful, the deal would avert another U.S. government shutdown on Friday. President Trump needs to sign off on the agreement, and that is far from a "done deal."
The Canadian dollar and the other major G-10 currencies were also supported by improved sentiment for a U.S./China trade agreement. U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer landed in Beijing to start high-level meetings with Chinese officials including Vice Premier Liu He. Arguably, this increase in hopes that a trade deal will be reached seems out of place. No talks have started, and the key players have just landed.
Nevertheless, the so-called riskier assets were in demand, and that included the Canadian dollar. Oil prices rallied. West Texas Intermediate (WTI) broke out of its one week $51.00-$53.00/barrel range overnight with a rally to $53.48 in early Toronto trading. Oil prices got an added boost by a report that Saudi Arabia would be cutting crude production to 9.8 million barrels per day in March.
EUR/USD is inching higher in an attempt to snap a seven-day decline which has also helped to improve the general risk tone in FX markets, supporting the Canadian dollar indirectly. The European Union single currency has been under pressure following a string of weak economic reports and a dovish European Central Bank outlook. (ECB) Across-the-board gains in European equity indices supported today's uptick in prices.
However, positive risk enthusiasm is being tempered by U.K. politics and the march to Brexit. Prime Minister Theresa May is updating Parliament on her ongoing EU talks, and another vote on Brexit is scheduled for Thursday.
Although risk sentiment has improved, its improvement is fragile suggesting FX trading will be tentative. Federal Reserve Chair Jerome Powell, Kansas City Fed President Ester George and Cleveland Fed President Loretta Mester are giving speeches today. Their remarks are not expected to have any impact on FX trading. Today’s Canadian economic data calendar is empty, and the U.S. data is third-tier.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
