The Canadian dollar had a strong performance in the second quarter of 2019. The loonie has gained 1.9% from its March 29 Toronto closing level until today’s open. Even more notable, it not only outperformed the commodity currency bloc, but it was also the only currency of that trio to rise. The Australian dollar fell 1.3% while the New Zealand dollar dropped 1.4%.
The Antipodean currencies suffered because the Reserve Bank of Australian and the Reserve Bank of New Zealand lowered interest rates during the quarter and left the door ajar to further cuts this year.
The Bank of Canada didn’t cut interest rates although some analysts believe that interest rate cuts may be in the pipeline. The Canadian dollar benefited from a reasonably strong economic performance.
Canadian dollar support from oil prices was hot and cold. Oil prices are lower today than they were at the end of Q2, while the loonie is a lot higher.
West Texas Intermediate (WTI) rebounded from a low of $50.58 U.S./barrel on June 4 to $59.90/b on June 25 for a gain of 18.4%. Prices were supported by rising concerns that oil demand will exceed supply in the foreseeable future because of a confluence of events. They include expectations that the Organization of the Petroleum Exporting Countries and Russia extend oil production cuts until the end of the year, and from hopes that the China/U.S. trade talks result in an agreement.
Further exacerbating oil demand were the elevated tensions between the U.S. and Iran and fears that oil supplies through the Strait of Hormuz are disrupted.
FX markets were deathly dull in overnight trading, despite it being month, quarter and half-year end. Traders hugged the sidelines ahead of President Trump’s scheduled meeting with Chinese President Xi Jinping on Saturday during the G-20 meeting in Osaka, Japan.
Markets are hoping that the bilateral meeting will jump-start the stalled trade negotiations and delay future tit-for-tat tariff exchanges. China is facing the threat of a new round of tariff increases.
In Europe, EUR/USD saw a modicum of support following better than expected Core inflation, which rose 1.1%, y/y in June, compared with May’s 0.8% increase. GBP/USD is higher on the back of month-end portfolio re-balancing demand, but well within yesterdays trading range.
It will be a busy day for Canadian dollar traders. April gross domestic product is on tap and expected to rise 0.1%, which is a lot weaker than the 0.5% gain in March. Better-than-expected data will boost the currency as it will provide additional support to the bank of Canada view of an economic rebound in the second half of the year.
The Bank of Canada Business Outlook Survey is released at 10:00 a.m. ET and will be closely scrutinized to see if Business Sentiment is worse than it was in the previous survey.
Today’s U.S. data includes Michigan Consumer Sentiment, Chicago Purchasing Managers' Index and Personal Consumption and Eexpentures, but its impact will be minimal ahead of the Trump/Xi meeting.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
