The Canadian dollar is consolidating yesterday’s gains in a USD/CAD range of $1.3370-$1.3420. The recent Canadian dollar gains are a direct result of widespread U.S. dollar selling pressures that emerged after Fed Chair Jerome Powell signaled that U.S. interest rates could be cut.
Earlier this week, another Fed official, St Louis Fed President James Bullard, said that a "rate cut may be warranted soon." Both men admitted that such a move may be necessary to boost inflation and offset economic risks from trade tensions.
This morning, the European Central Bank (ECB) will issue its monetary policy statement and provide updated economic projections. Markets are expecting a dovish result due to weak Eurozone data, soft inflation and on-going Italian budget concerns.
GBP/USD ticked up from its overnight low of $1.2671 and is flirting with the $1.2700 area. Prices got a bump after Bank of England Governor Mark Carney said U.K. rates would have to rise if the economy continues to perform as the Monetary Policy Committee expects. However, the ongoing leadership race to replace outgoing Prime Minister Theresa May and the rising risk of a "no-deal" Brexit will cap gains.
West Texas Intermediate (WTI) oil prices have bounced after touching $51.30 U.S./barrel overnight. Prices are under pressure due to concerns that the ongoing U.S./China trade war will lead to slowing global growth and thus, less demand for crude. The Organization of the Petroleum Exporting Countries is trying to counter the price drop and is talking about extending existing production caps until the end of 2019.
President Trump’s threat to levy 5% tariffs on the import of all goods from Mexico has made markets nervous with traders eyeing safe-haven currencies. USD/JPY touched 107.82 yesterday and has since recovered but traders appear unwilling to take prices above 108.40.
Trump fanned the Mexico tariff fears further last night tweeting "Immigration discussions at the White House with representatives of Mexico have ended for the day. Progress is being made, but not nearly enough! Border arrests for May are at 133,000 because of Mexico & the Democrats in Congress refusing to budge on immigration reform. Further... ....talks with Mexico will resume tomorrow with the understanding that, if no agreement is reached, Tariffs at the 5% level will begin on Monday, with monthly increases as per schedule. The higher the Tariffs go, the higher the number of companies that will move back to the USA!"
In Asia, AUD/USD came under early pressure after its April trade surplus narrowed. The move didn’t last, and prices recovered in Europe. NZD/USD trade sideways, supported by yesterday’s comments from Reserve Bank of New Zealand Assistant Governor Hawkesby that domestic rates were likely to remain unchanged.
The Canadian trade deficit is expected to narrow modestly due to higher oil prices in April. However, the result should not have any impact on the Canadian dollar.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
