The Canadian dollar is probing resistance in the USD/CAD $1.3120-50 zone, in part due to another rise in crude oil prices. West Texas Intermediate (WTI) jumped from $57.76 U.S./barrel yesterday to $59.10 in Asia after the American Petroleum Institute reported U.S. crude inventories fell 7.5 million barrels in the week ending June 21. The drop in U.S. supplies combined with fears of a massive supply disruption from an escalation of U.S./Iran tensions fueled the rally.
Prices are also supported by expectations that the Organization of the Petroleum Exporting Countries and Russia will extend oil production cuts until the end of the year.
The rise in oil prices undermined the Canadian dollar, but so did U.S./China trade talk news. Treasury Secretary Stephen Mnuchin interviewed on CNBC, said: "we are 90% of the way there." He believes that President Trump and President Xi Jinping will re-start the stalled talks.
The U.S./China trade war was one of the reasons cited by the Reserve Bank of New Zealand in its monetary policy statement last night. The RBNZ left its Overnight Cash Rate (OCR) unchanged at 1.5% but warned: "the weaker global economic outlook and the risk of ongoing subdued domestic growth, a lower OCR may be needed over time to continue to meet our objectives." The dovish statement was expected.
The improved tone to the China/U.S. trade talks boosted the New Zealand, Australian and Canadian dollars.
The U.S. dollar was in demand in Asia after St Louis Fed President James Bullard said that he thought cutting U.S. interest rates by 50 basis points this year would be overdoing things. Traders viewed his comment as a less dovish policy stance and bought U.S. dollars.
USD/JPY rallied on a modest increase in U.S. Treasury yields and because of the improved trade rhetoric.
In Europe, EUR/USD trading was subdued and rangebound. The single currency is supported by minor risk aversion demand due to Iran/U.S. tensions but weighed down by the dovish European Central Bank outlook.
Sterling traders have been busy. GBP/USD has chopped about in a $1.2664-1.2704 range. Bank of England Governor Mark Carney caused a bit of chop in his remarks to the U.K. parliament. Carney told lawmakers that market expectations of a no-deal Brexit had risen substantially over the past few months. The statement should not have surprised anyone, but GBP/USD bounced erratically anyway.
U.S. Federal Reserve Chair Jerome Powell’s speech yesterday didn’t provide any new insight to Fed policy. He repeated that the Fed was "closely monitoring conditions."
China took another shot at Canada yesterday, stopping imports of Canadian meat because of "falsified documents." Canadian officials haven’t responded.
Today’s U.S. data includes Durable Goods Orders, Wholesale Inventories and Goods Trade balance.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
