It’s a new year and a new decade. And for the Canadian dollar, it is a "new Big Figure." The standard interbank quotation for Canadian and U.S. dollars is "USD/CAD," which means the amount of Canadian dollars required to purchase one U.S. dollar. On December 20, USD/CAD was $1.3172. This morning it opened in Toronto at $1.2992, which is a new big figure.
The Canadian dollar was in demand in the run-up to year-end. Portfolio managers rushed to buy Canadian dollars before the December 31 close to ensure the integrity of their benchmarks. That demand occurred during holiday-thinned FX markets which exaggerated the moves. In addition, Canadian dollar buyers emerged due to the announcement that the U.S./China Phase-One trade agreement would be signed at a ceremony on January 15, at the White House. The trade deal bolstered optimism for renewed global growth which supports commodity-exporting currencies. Oil prices provided another layer of support for the currency.
West Texas Intermediate, rose 12.2% in December. Russia and members of the Organization of the Petroleum Exporting Countries' announcement of additional crude production cuts until the end of March sparked the rally and then the U.S./China trade news fueled additional gains. Another bout of Middle East tension added to oil demand. Those gains provided another layer of support to the Canadian dollar.
Chinese Manufacturing Purchasing Managers Index data showed that their economy continued to expand, despite the U.S. tariffs. The Phase 1 deal combined with the Peoples Bank of China (PBoC) announcement of another Reserve Requirement Ratio cut of 0.50% bolstered risk sentiment overnight.
The Australian and New Zealand dollars rallied into year-end but gave back some of those gains overnight. Still, both currency pairs are in minor uptrends supported by the trade news.
USD/JPY dropped like a stone between December 26 and year-end but managed to eke out some gains overnight.
EUR/USD came under pressure in Europe after German, and eurozone December Manufacturing PMI reports showed both areas were feeling the effects of an ongoing economic slowdown. The results supported the European Central Bank’s dovish bias and undermined the single currency. EUR/USD dropped from a year-end peak of $1.1235 to $1.1184 in Toronto today.
GBP/USD rallied on the back of month-end and year-end demand on New Year’s Eve. Prices climbed from $1.3105 to $1.3275 by the end of the day. The new year bought GBP/USD sellers into the fold, and the currency dropped to $1.3177 today.
There are only second-tier Canadian and U.S. economic reports available today and they will not have much impact on FX trading.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
