The Canadian dollar is caught in a downdraft. Weaker-than-expected domestic data, and bearish Canadian dollar technicals have driven the currency to the bottom half of its 2019 range. Yesterday, Canada December Manufacturing Shipments data dropped 1.3% which was well below the forecast for a gain of 0.2%. The Canadian dollar plunged but managed to recover most of its losses before the end of the day.
The Canadian dollar traded quietly in a mostly uneventful overnight session. Weaker than forecast China January inflation data triggered selling in AUD/USD and NZD/USD, but they managed to recoup their losses by the New York open. USD/JPY drifted lower on the back of softer US Treasury yields. Both, USD/JPY and U.S. Treasury yields bounced back.
Asia equity markets fell after the U.S./China trade talks ended without any concrete results. Both sides talked about good progress being made although the American’s qualified as "needing to get over a lot of hurdles." China Xinhua News said that "China and the U.S. achieved consensus on some key issues including technology transfer, IP protection, non-tariff barriers, services and agriculture" which helped improve risk sentiment in early New York trading.
That news also gave U.S. equity futures a bit of lift which points to a positive open for Wall Street today. How long it lasts is anyone’s guess. President Trump is expected to speak around 10:00 am EST. He is expected to announce that he is signing the bi-partisan funding bill that prevents the shutdown of the government. However, he may also create a political kerfuffle if he uses his announces that he is declaring a "National Emergency" to extract funding for his Mexico Wall.
WTI oil prices recovered yesterday’s losses and have settled into a $54.50-$55.00/barrel range. Saudi Arabia’s announcement, earlier this week, that they planned to help shore up prices by cutting crude production by 500,000 barrels per day has underpinned prices. So has the news of US/China trade talk progress. Traders are hoping that a successful conclusion to the negotiations will spark renewed demand for crude and raise prices even higher. That sentiment has helped to cap Canadian dollar losses.
Today’s U.S. economic data releases include Capacity Utilization, Industrial Production and Michigan Consumer Sentiment. Weaker-than-expected data should undermine the U.S. dollar and could support the Canadian dollar. Trading activity may slow as Canadian traders try to get an early start to the long weekend.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
