The Canadian dollar is trading with a positive tone in early Toronto markets. Currency traders chalked up Friday’s Canadian Labour Report weakness (Canada lost 2,200 jobs) as merely "payback" following a string of robust gains. Also, the job losses were concentrated in the part-time category. Canadian dollar losses that followed a surprisingly robust U.S. non-farm payrolls report were short-lived and nearly fully recouped by the end of the day.
The Canadian dollar is underpinned by Friday’s jump in West Texas Intermediate oil prices. Iran’s statement that it plans to produce enriched uranium beyond the European Union treaty limits raised fears of an adverse reaction by the U.S. President Trump’s unilateral scrapping of the Iran Nuclear Treaty, over the objections of the other treaty signatories, precipitated the crisis.
The U.S. dollar is a tad firmer in Toronto trading, compared to Friday’s close although the overnight price action was underwhelming. The Turkish Lira was hammered at the Asia open because Turkey President Tayyip Erdogan fired his Central Bank Chief. Like Trump, Erdogan was unhappy with the Turkish Central Bank’s high-interest rate policy. Fortunately, the drama was contained to Turkey.
EUR/USD is grinding lower, weighed down by soft German data and ongoing fears that Mario Draghi’s dovish policies will be continued if International Monetary Fund’s Christine Lagarde’s nomination as European Central Bank chief is successful. Sales of EUR/CAD have contributed to Canadian dollar support.
The British pound remains under pressure and is flirting near January’s low. The risk of a snap U.K. election ahead of the October Brexit deadline is weighing on prices.
The U.S. gained 224,000 new jobs in June, well above forecasts for an increase of 160,000. The report sparked a wave of U.S. dollar buying as it gives the Federal Reserve an excuse to delay cutting the Fed funds range. Nevertheless, a 0.25-basis-point rate reduction on July 31 is fully priced in.
The NFP results boosted U.S. Treasury yields, and that triggered USD/JPY demand.
Canadian dollar traders are looking ahead to Wednesday’s Bank of Canada monetary policy statement and Governor Stephen Poloz’s press conference. The statement is expected to be unequivocally neutral. The BoC will likely avoid anything that suggests a rate cut is in the cards. At the same time, the BoC will be loathe to suggest anything that triggers renewed Canadian dollar demand.
FX markets will be content to drift today, in part because of empty economic data calendars in Canada and the U.S. Traders will be looking ahead to Fed Chair Jerome Powell’s Semiannual Monetary Policy Report to the Congress, before the House Financial Services Committee on Wednesday.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
