The Canadian dollar is retreating, and so far, it has been orderly. That could change if USD/CAD prices break above resistance in the $1.3130-40 zone. If so, weak, short USD/CAD positions would get squeezed and the rally could extend to $1.3230.
However, the Canadian dollar is slightly insulated from the worst of the broad U.S. dollar moves against the G-10 majors thanks to rising West Texas Intermediate oil prices. Oil prices have increased from last week’s $56.10 U.S./barrel low to $58.16 this morning due to fresh fears of crude supply disruptions from the Middle East. Last week’s seizure of a Panamanian flagged oil tanker filled with Iran crude by the UK and subsequent threats of reprisals by Iran, underpinned prices.
Ongoing concerns about shrinking US crude inventories combined with the latest extension by Russia and the Organization of the Petroleum Exporting Countries to production cuts are outweighing worries about a global growth slowdown due to the U.S./China trade dispute.
Trade disputes with the U.S. are the new "normal," regardless of existing trade treaties. The Trump administration demonstrated that fact again overnight, slapping tariffs on Fabricated Structural Steel (FSS) imported from Mexico and China. Mexico just ratified the United States Mexico Canada Agreement on trade deal on June 19 and less than three weeks later, Uncle Sam is ignoring the deal.
The commodity bloc currencies were sold on the back of the tariff news. AUD/USD dropped 0.62%, falling from 0.6974 to 0.6931 while NZD/USD dropped to 0.6607 from 0.6630. Australia’s NAB Business Confidence and Conditions Indices were as expected and didn’t help the currency.
The U.S. dollar added to yesterday’s gains after traders downgraded their U.S. rate cut expectations. Friday’s surprisingly strong U.S. employment report led to markets reviewing forecasts for two Fed rate hikes in 2019. July rate cut expectations are unchanged, but the jury is still out as to the Feds appetite for additional cuts. That sentiment caught Canada dollar bulls off-guard, and the currency was sold.
USD/JPY climbed on the downgrade U.S. rate outlook as U.S. Treasury yields surged, rising from 1.941% to 2.06% this morning.
The British pound was the biggest mover in overnight markets. GBP/USD plunged from $1.2521 to $1.2446 on heightened fears of a "no-deal" Brexit. Markets are afraid that if Boris Johnson becomes Prime Minister (and that is the most likely result of the Tory leadership contest), he will prorogue parliament to ensure a no-deal Brexit at the end of October.
Canada Housing Starts and Building Permits data are due today but should not be a trading factor ahead of tomorrow’s Bank of Canada meeting.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
