The Canadian dollar is in demand. A steep rally in West Texas Intermediate (WTI) oil prices since the end of August has contributed to the positive bias in the domestic currency.
Yesterday, Saudi Arabia’s new oil minister suggested that the Organization of the Petroleum Exporting Countries and Russia oil production caps would continue.
That news, combined with a more positive tone to U.S./China trade talks, improved the global growth outlook, and led to the buying of "riskier assets."
The Canadian dollar continues to benefit from Friday’s U.S. and Canadian employment reports. U.S. non-farm payrolls were lower than predicted, which triggered U.S. dollar selling on the assumption that encouraged a more aggressive Fed easing policy. The Canadian employment report beat expectations which some analysts believe makes it harder for the Bank of Canada to justify a rate cut in October.
FX market sentiment turned positive after the U.S. and China said that face-to-face-trade negotiations would occur in October. Recent Chinese economic reports suggest the U.S. tariffs are taking a toll on the economy. Yesterday, China reported that its trade surplus narrowed sharply and that exports fell 1.0% in August. Overnight, the Chinese data was mixed. Inflation was a tad higher but blamed on special factors while Producer Prices fell, but a tad less than expected.
The latest batch of Chinese data caused AUD/USD and NZD/USD rallies to stall.
Both currency pairs drifted lower but remained well above Friday’s low. Australia Business confidence data for August was lower than what was reported in July, which weighed on the currency pair.
USD/JPY has gained 1.7% since the start of the month. Prices rose of yesterday’s closing level of 107.23 to 107.49 as currency traders tracked US Treasury yields.
In Europe, EURUSD was confined to a 1.1033-58 range although sentiment is cautiously bearish. Traders are awaiting Thursday’s European Central Bank (ECB) meeting. President Mario Draghi’s tenure is coming to an end.
He has only Thursday’s and one other meeting left and may choose to go out with a "bang." He recently promised to use "all the tools available" to boost Eurozone growth and analysts expect those tools to be utilized on Thursday. The scope of the stimulus measures will determine the direction of EUR/USD, as some stimulus is reflected in the price.
GBP/USD traded raggedly in a $1.2309-$1.2378 range overnight. The count down to October 31 is in full swing.
However, the U.K. parliament has been prorogued, which limits political action. Prime Minister Boris Johnson’s attempt to call an early election was thwarted. However, he still promises to take the U.K. out of the EU by the end of next month.
There are not any top tier U.S. or Canadian data releases today, leaving FX direction to be determined by Treasury yield movements and equities.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
