The Canadian dollar sank below the support level which had contained all downside moves during August. The breach turned the technical picture to bearish and pointed to further losses in the days ahead. Adding insult to injury, the Canadian dollar losses were due to external influences, not domestic developments.
Oil prices remain in the downtrend which began in April. Last week’s West Texas Intermediate (WTI) price rally stalled on the downtrend line. ($56.70 U.S./barrel) Prices quickly retreated below minor support at $55.30/b to extend losses to $53.82 in early Toronto trading, today.
Selling pressure occurred when the Organization of the Petroleum Exporting Countries reported an increase in crude production in August.
Also, the new tariffs imposed on Chinese imports to the U.S. and vice versa, which came into effect on Sunday, elevated concerns for a prolonged trade war. The prospect of weaker global crude demand due to slowing global growth exacerbated selling pressures, which undermined the Canadian dollar.
U.K. political developments played a role as well. British parliamentarians returns from their summer recess today amidst Prime Minister Boris Johnson's threat of an election on October 14. He wants the U.K. to leave the European Union with or without a deal, on October 31. The opposition does not want a "no-deal Brexit" to happen and hopes to pass a bill in the next few days that will ask for a three-month extension to the Brexit deadline. Traders did not like what they heard and sold GBP/USD down from Friday’s close of $1.2166 to $1.1959. Prices have rebounded to 1.2054 in early Toronto trading. In addition, Monday’s UK Markit Purchasing Managers Index data for August was weaker than forecast as was this mornings U.K. Construction PMI data.
EUR/USD suffered from the Sterling selloff and is currently trading just above the overnight low of 1.0932. The single currency is under pressure because of weak eurozone data and expectations for a new monetary stimulus plan being announced at the European Central Bank policy meeting next week. The drop in EUR/USD fueled broad U.S. dollar demand which undermined the Canadian dollar.
FX traders are eyeing recessions concerns again. The U.S. yield curve is inverted again with the 10-year Treasury yield at 1.484% while the two-year yield is 1.50%. European bourses are in the red and U.S. equity futures pointed a negative open for Wall Street.
There are not any Canadian economic data releases of note today. U.S. Institute for Supply Management Manufacturing and Construction spending reports are on tap.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
