The Canadian dollar rally is poised to close the week with a 0.76% gain against the U.S. dollar. Broad U.S. dollar selling against the major G-10 currencies and a steep rise in oil prices fueled the advance, but further upside may be limited today. Canada Manufacturing Shipments data for January are expected to rise by 0.4%, rebounding from December’s -1.3% decline.
Analysts suggest that a better-than-forecast result indicates an improvement in Q1 Gross Domestic Product growth. If so, the Canadian dollar will rise and test key resistance levels in the USDCAD $1.3260-90 zone. Conversely, a weaker than expected report would raise fears that the Q4 economic slump may be more prolonged than previously thought which would undermine the currency.
The Canadian dollar could be in for a tough day if the domestic data is soft and the U.S. dollar rebounds in a pre-weekend profit taking rally. Such a move could be sparked by better than expected U.S. data, including the Michigan Consumer Sentiment survey. The Index is predicted to be at 95.3 compared to February’s 93.8 reading.
FX markets were mostly quiet overnight although Sterling traders saw a flurry of activity in early Asia trading. GBP/USD careened inside a $1.3205-$1.3276 range following yet another U.K. parliament vote on Brexit. The vote was to win approval to ask the European Union for a three-month extension to Article 50, which takes the U.K. out of the E.U. The motion was passed by a wide margin. Now Prime Minister Theresa May’s government must convince all 27 members remaining in the E.U. to grant the request.
In Asia, China Premier Li Keqiang said the government would counter the current domestic economic slowdown by providing additional fiscal stimulus in the form of tax cuts and infrastructure spending. Those comments helped lift the Australian, New Zealand and Canadian dollars but the gains were limited.
Oil prices climbed overnight after steadily rising since last Friday’s low of $54.55 U.S./barrel to $58.92 overnight. The International Energy Agency (EIA) left its global growth estimate for 2019 unchanged and said global oil production fell in February. The decline was due to production losses in Venezuela and lower output from Iran and Saudi Arabia.
Oil traders took special note of this paragraph in the Oil Market Report: "On the basis of solid oil demand growth, modest declines in OPEC production due to Iran and Venezuela, and rising U.S. output, the market could show a modest surplus in 1Q19, before flipping into deficit in 2Q19 by about 0.5 mb/d. This does not take into account Saudi Arabia's announced plans to reduce its exports further in April."
The risk of oil demand exceeding supply in 2019 underpinned WTI oil prices and the Canadian dollar.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
