The Canadian dollar drifted higher in a subdued overnight session but remains within shouting distance of yesterday’s low. The Canadian dollar plunged after the Bank of Canada delivered a somewhat dovish policy statement that suggested Canadian interest rates would stay unchanged for quite some time.
USD/CAD was trading at $1.3486 before the announcement and then $1.3544 immediately afterwards. That move broke above a major resistance zone in the $1.3520-30 area which opened the door to further gains to 1.3700 (72.0 U.S. cents/CAD dollar) However, the gains were not sustained, and prices retreated. The Bank of Canada left interest rates unchanged for the seventh consecutive meeting, which was not a surprise. The surprise came when it said trade restrictions that were introduced by China were having a direct effect on Canadian exports.
Analysts concluded that the BoC would be sidelined for as long as the U.S./China trade war raged. Traders are hoping for additional insight into the BoC’s outlook today when Senior Deputy Governor Carolyn Wilkins discusses the Economic Progress Report. The U.S. dollar opened in Toronto with a small bias to unwind some safe-haven trades.
The Swiss franc and Japanese yen are modestly lower compared to yesterday’s close while the other G-10 major currency pairs have eked out small gains. In Asia, AUD/USD got a bit of a boost despite April building permits data coming in below forecast. (Actual -4.7 % vs forecast 0.9%) A slight unwind of safe-haven trades supported the rally. USD/JPY traded higher on the back of firmer U.S. Treasury yields.
European FX markets were extra-quiet overnight as many markets were closed for Ascension Day holidays, and consequently, there wasn’t any top-tier data available. UK markets were open. GBP/USD traded quietly in a narrow $1.2612-$1.2639 range. Sentiment is bearish due to the risk of a "no-deal" Brexit, which gets higher if Boris Johnson wins the race to replace Theresa May.
Oil prices have undermined the Canadian dollar. West Texas Intermediate is trading erratically and with a negative bias. Traders concerns about slowing global growth due to the U.S./China trade war is outweighing the risk of shortages from production cuts by the Organization of the Petroleum Exporting Countries.
However, the American Petroleum Institute said U.S. crude inventories fell 5.3 million barrels last week which underpinned prices overnight.
Traders are looking for confirmation of that decline when the Energy Information Administration (EIA) releases their weekly oil stocks report today. Traders are awaiting today’s numerous U.S. data releases. Q1 (preliminary) Gross Domestic Product, jobless claims, wholesale inventories, Pending Home Sales, and Personal Consumption and Expenditure data are on tap.
