The Canadian dollar is pushing the envelope and extracting gains in an otherwise moribund FX market. There is a dearth of domestic and actionable top-tier U.S. economic data forcing traders to look elsewhere for inspiration. They found it in oil. Crude oil prices have surged in the past week, and USD/CAD traders have finally taken notice.
Prices for West Texas Intermediate, the North American benchmark, have risen from $58.28 U.S./barrel on March 28 to $64.76/b overnight, an 11.1% gain in just 12 days. There are a host of reasons for the surge in prices, particularly forecasts suggesting that oil demand in the second half of this year will exceed supply.
The existing production cuts by Russia and the Organization of the Petroleum Exporting Countries have put a serious dent into global inventories, and those cuts coupled with production disruption and U.S. sanctions against Venezuela and Iran have underpinned prices. Also, if the U.S. and China come to terms on a new trade pact, traders expect a boost in global growth which would exacerbate oil demand and is supporting the Canadian dollar.
The Canadian dollar rallied above key resistance levels overnight, setting the stage for additional gains in the short term. USD/CAD moved below its 100-day moving average which has hung a target on the 200-day moving average. The break below the 38.2% Fibonacci level of the October 2018/January 2019 range suggests further losses to the 50% level which resides at $1.3224.
However, oil prices are just one factor that plays a role in the Canadian dollar outlook. Broad U.S. dollar sentiment is a major driver of direction, and lately, sentiment has been modestly bearish. The Fed is dovish, and that view will get reinforced tomorrow afternoon when the minutes of the March 20 Federal Open Market Committee meeting are released. The minutes are expected to show that the Committee is firmly on hold and will stay that way until inflation picks up.
The U.S. dollar opened in Toronto with losses across the board on the back of an improved risk tone. The China/U.S. trade negotiations are slowly progressing. It appears that a deal is within reach as there are reports that President Trump and China President Xi Jinping will meet in Washington near the end of April.
Just as one trade dispute looks like it will get resolved, another one pops up to take its place. President Trump has refocused on European Union trade policies and is threatening to levy tariffs on €11 billion of imports including aircraft.
There isn’t any US or Canadian data of note today.
