The Canadian dollar rallied alongside a 4.1% jump in West Texas Intermediate oil prices yesterday. It held those gains in overnight action.
Traders had a lot to digest ahead of today’s Federal Open Market Committee (FOMC) meeting including U.S./China trade developments, President Trump twitter tirades aimed at European Central Bank (ECB) President Mario Draghi, and the outlook for the FOMC meeting.
Asia markets opened to a mild bout of positive risk sentiment. The major stock indices were higher across the board, following in the footsteps of Wall Street thanks to President Trump’s tweet about meeting China President Xi Jinping at the G-20 meeting on June 28 and 29. Trump tweeted "Had a very good telephone conversation with President Xi of China. We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting."
The apparent thaw in U.S./China trade tensions boosted AUD/USD and NZD/USD which were already supported by expectations for a dovish FOMC statement. USDJPY bounced within its well-defined 108.00-108.80 range. Prices are supported by steady U.S. Treasury yields and dovish BoJ Governor Kuroda comments, but gains are capped on the Federal Reserve interest rate outlook.
EUR/USD has recovered from yesterday’s dovish comments by ECB President Draghi suggesting that low inflation and slow economic growth would necessitate further monetary easing. Trump was not happy with Draghi’s view. He tweeted "Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the dollar, making it unfairly easier for them to compete against the USA. They have been getting away with this for years, along with China and others."
The President will be closely watching the FOMC meeting today. Trump did not deny reports that he was looking at how he could demote Fed Chair Jerome Powell last February. Yesterday a reporter asked him if he still wanted to demote Powell and he responded with "Let’s see what he does."
Today’s FOMC statement is expected to be dovish with some analysts looking for a signal that rates will be cut in July. However, other analysts point out that positive developments on the U.S./Trade front or even a trade deal would boost the US economy and negate any need for lower rates.
Trump’s tweet about meeting Xi Jinping sent oil prices soaring. West Texas Intermediate, the North American benchmark climbed from $51.40 on Tuesday to $54.40 in Asia. Prices have retreated slightly, but the combination of renewed global growth following a China/US trade deal and an extension of Opec production cuts underpinned prices and the Canadian dollar.
The Canadian dollar could get an added boost this morning if domestic inflation data for May (forecast 0.2%) is higher than expected.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
