The Canadian dollar is a bystander in FX markets today. U.S. dollar direction is being dictated by China/US trade talks, Brexit, euro-zone developments and the Bank of Japan.
U.S. and Canadian markets were closed for holidays on Monday, which served to dampen FX trading globally. In Australia, the Reserve Bank of Australia minutes from the February 5 policy meeting were released. They confirmed what traders already knew -- the RBA was concerned about downside risks. Still, they knocked AUD/USD lower, and NZD/USD followed suit. The move served to limit Canadian dollar gains despite rising oil prices.
West Texas Intermediate (WTI) climbed from $51.25 U.S./barrel on February 11 to $56.31/b overnight a gain of just under 10%. That move managed to drive USD/CAD from 1.3335 to 1.3227 on Monday. Oil prices are underpinned by rising expectations that a successful conclusion to the U.S./China trade talks will trigger renewed demand for crude oil. They are also supported by the previously announced production cuts by the Organization of the Petroleum Countries and talk that compliance is close to 100%.
China’s trade delegation is in Washington this week for another round of discussions that begin on Wednesday. On Friday, U.S. President Trump said that the increase to 25% for tariffs on $200 billion of Chinese imports would be delayed if there was progress on trade. The news underpinned U.S. equity markets which closed on a firm note on Friday, and it also boosted the commodity bloc currencies which includes the Canadian dollar.
The Canadian dollar inched lower, by a surge in USD/JPY overnight. Bank of Japan Governor Kuroda told the Japanese Parliament that the BoJ would inject additional stimulus into markets if the rising Yen risked impacting the economy and risked preventing them from achieving their 2.0% inflation objective.
U.K. and European political developments and economic data have supported the US dollar as well. In Europe, European Central Bank officials warned of risks from a slowing economy. ECB Chief Economist Peter Praet said the Bank had plenty of tools available to help offset a slowdown. Traders were concerned about the possibility of another dovish tilt at the next ECB meeting, and that weighed on EUR/USD. Spain’s snap election call was another concern. The news wasn’t all bad. The euro-zone ZEW survey was better than expected. Economic Sentiment Index improved to -16.6 from -20.9 in January.
GBP/USD got a short lift from a better than forecast employment report. The gains were quickly reversed to lingering uncertainty around Brexit. Prices have since rebounded in early Toronto trading.
The U.S. and Canadian economic calendar is empty today. Traders will be cautious ahead of tomorrow’s Federal Open Market Committee minutes.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
