The Canadian dollar ignored yesterday’s sharp drop in West Texas Intermediate oil prices and traded narrowly in a quiet overnight session. Oil prices came under renewed selling pressure yesterday as U.S. President Trump’s threat to impose tariffs on European Union imports stoked fears of a global growth slowdown. The president previously threatened 25% tariffs on car imports from the E.U. and his administration is reportedly considering tariffs on another $4.0 billion of E.U. products.
Trump’s latest attack on E.U. trade practices comes on the heels of a somewhat improved trade negotiation landscape between China and the U.S.. China agreed to open up some of its markets and the U.S. deferred promised new tariffs while the talks are going on.
The Organization of the Petroleum Exporting Countries and Russia agreed to extend production caps for another nine months, until March 2020, in an effort to shore up prices. At the moment, the tactic doesn’t appear to be working. West Texas Intermediate oil prices plunged from $59.40 U.S. /barrel yesterday in Europe to $56.04 today in Asia. The plunge occurred despite the American Petroleum Institute reporting that U.S. crude inventories declined five million barrels in the week ending June 28.
The U.S. dollar opened in Toronto on a slightly weaker footing compared to yesterday’s closing levels. Sterling was the only currency that it managed to squeeze out a gain and that was due weaker than expected U.K. Markit Service Purchasing Managers Index data for June. PMI managers blamed Brexit uncertainty and a sluggish U.K. economy for the result.
EUR/USD opened unchanged from yesterday’s Toronto close. Prices drifted in a narrow range overnight, and traders ignored modestly better than expected eurozone Composite and Services PMI reports. Instead, they carefully watched the European Union’s shuffling of the leadership chairs. International Monetary Fund Managing director Christine Lagarde was nominated for president of the European Central Bank, to replace outgoing Mario Draghi. The nominations still need to be approved by the European Parliament. EUR/USD drifted in a $1.1169-$1.1194 range.
In Asia, USD/JPY came under pressure and made a one-week low at 107.54 as a ripple of risk aversion sentiment washed over markets. Traders sold USD/JPY, in part, because of Trump’s tariff threat against the EU. However, the primary catalyst was the fresh plunge in U.S. Treasury yields to 1.941%.
Weaker than expected China Caixin Services PMI data fueled selling pressures in China’s Shanghai Shenzhen CSI 300 index, but AUD/USD and NZD/USD traders ignored that move. The antipodean currencies managed to squeeze out small gains.
There is a lot of U.S. data on tap this morning because of the July 4 holiday tomorrow. Canada releases the Merchandise Trade Report. If exports are sharply weaker than expected, the Canadian dollar will be sold.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
