The Canadian dollar is trading in Toronto very close to where it left off yesterday. FX markets were very quiet overnight with traders adopting a cautious stance ahead of this afternoon’s highly anticipated Federal Open Market Committee meeting.
The Canadian dollar had a great morning on Tuesday but a "not-so-great" afternoon. West Texas Intermediate oil prices climbed to $59.52 U.S./barrel, and the U.S. dollar was trading softer against the G-10 major currencies. The loonie rallied and broke through 100-day moving average resistance but could not drive above the 75.47-cent level against the U.S. dollar.
U.K. political developments took a toll on positive risk sentiment after the Speaker of the House ruled against allowing Prime Minister Theresa May to table her Brexit deal for a third vote. He insisted it needs to be substantially different which force the PM to seek an Article 50 extension from the European Union. Her letter to that effect is expected to be delivered today.
Those developments and the E.U.’s less than warm welcome to the news pressured GBP/USD overnight. GBP/USD opened at 1.3225, after trading in a $1.3270 to $1.3214 range, and then dropped further in Toronto trading, touching $1.3192, after Labour Party Leader Jeremy Corbyn demanded a confirmation referendum on a Brexit deal.
Today’s release of the Federal Open Market Committee meeting policy statement updated economic and interest rate forecasts and Fed Chair Jerome Powell’s press conference gave the US dollar a bit of support in Europe and Asia. The Fed is expected to leave U.S. interest rates unchanged but nudge their "dot-plot" forecasts lower. In December, the “dot-plot" anticipated two rate hikes in 2019. Today’s forecast is expected to show just one. Even so, it still leaves the Fed as the only major G-10 central bank with a tightening bias. The rest are neutral and some, like the Bank of Canada, and Reserve Bank of Australia, could be forced to cut rates.
The selloff in WTI oil prices was due to profit taking ahead of today’s Fed meeting as well and concern about the state of the U.S./China trade talks. A Bloomberg article said China was stepping back from earlier trade concessions even as Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are heading to China next week. Those jitters were an excuse to take profit and undermined the Canadian dollar in the process.
The Canadian government released its 2019 budget. It plans a $22.7-billion spending spree to buy votes ahead of the October election but the news did not impact the Canadian dollar.
The economic calendar is empty, and traders will bide their time until the FOMC meeting concludes at 2:00 p.m. EDT.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
