The Canadian dollar’s narrow trading range since April 23 is still intact. It spent the first three days of this week in the lower boundaries of its bands, and it is probing the upper limit this morning. Statistics Canada said yesterday that Canadian inflation rose 0.4% in April and 2.0% year over year. The result was expected, and since it wasn’t bad news, it encouraged some Canadian dollar buying.
FX markets were a tad risk-averse during the Asia session. U.S. President Trump signed an executive order that bans American companies from using parts from sources deemed a national security risk. It was a direct shot at Huawei Technologies, the world’s largest provider of telecommunications gear and it effectively blacklisted the company from the U.S. A China Ministry of Commerce spokesman said "China has always stressed that the concept of national security should not be abused. It should not be used as a tool to push forward trade protectionism."
Asia equities were sold in response to the action, and the Japanese yen was in demand as a safe-haven currency. Lower U.S. Treasury yields fueled selling of USD/JPY. However, the negative sentiment diminished during the European session. USD/JPY climbed from its overnight low of 109.34 and is trading at session highs of 109.65 in Toronto. U.S. Treasury yields also recovered, marginally.
European equity indices recouped earlier losses and are modestly higher thanks to rump’s decision to delay tariffs on the import of cars from the European Union. However, the equity recovery hasn’t helped, or hurt the euro. EUR/USD has chopped about in a tight $1.1202-$1.1223 range and is at the bottom of that band in Toronto trading.
GBP/USD is under pressure for the third consecutive day. Traders are worried that the U.K. will leave the European Union without a deal. They also believe Prime Minister Theresa May’s plan to table her withdrawal bull for the fourth time is doomed to failure.
Oil prices are climbing despite yesterday’s Energy Information Administration data, reporting U.S. crude inventories rose 5.43 million barrels in the week ending May 10. It was far higher than expected, but traders were more concerned about the possibility of supply disruptions from rising US and Iran tensions. WTI continued to climb in early Toronto trading and prices are at $62.74 U.S./barrel.
There is a lot of U.S. data on tap today, including Weekly Jobless Claims, Philadelphia Fed Manufacturing Index, Building Permits and Housing Starts.
Canada March manufacturing shipments (forecast 1.1%) are also available. An upside surprise could lead to renewed Canadian dollar demand, although broad U.S. dollar sentiment is the primary driver of currency direction.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
