The Canadian dollar added to yesterday's gains overnight, underpinned by a surge in crude oil prices.
West Texas Intermediate (WTI) oil prices have more than doubled since touching $10.08 U.S./b on April 28. The catalyst for the move was the onset of the Organization of the Petroleum Exporting Countries, Russia, and others' agreement to slash crude production by 10.0 million barrels per day, beginning May 1. Gasoline sales have started to increase with the reopening of previously locked-down Texas cities and in China.
Optimistic crude price forecasts are also supporting prices. Goldman Sachs expects WTI prices to climb to $51.38/b in 2021 while UBS analysts suggest crude demand will outstrip supply by Q4 2020. The Canadian dollar was supported on the news.
Yesterday, Bank of Canada Deputy Governor Carolyn Wilkins said that the Bank’s recent monetary policy actions were in alignment with its policy mandate. She said "The inflation-control target agreement between the bank and the federal government has been the cornerstone of our operational independence for almost three decades. Our new programs align with this agreement because they are helping to lessen financial hardship today and paving the way to a sustainable recovery." Her remarks did not have any impact on the Canadian dollar.
A German Constitutional court ruling roiled EUR/USD markets, knocking the single currency from $1.0925 to $1.0827. The court ruled that the Bundesbank, Germany’s Central Bank needed to stop participating in the European Central Bank’s Public Sector Purchase Program (PSPP). The PSPP program was a quantitative easing initiative launched by then-ECB President Mario Draghi.
According to the ruling, "The Bundesbank may thus no longer participate in the implementation and execution of the ECB decisions at issue, unless the ECB Governing Council adopts a new decision that demonstrates...the PSPP are not disproportionate to the economic and fiscal policy effects."
GBP/USD followed EUR/USD moves and dropped from $1.2483 to $1.2422 but rebounded to $1.2444 in early Toronto trading.
A better than expected Markit Services Purchasing Managers Index reading for April underpinned prices.
In Asia, the Reserve Bank of Australia monetary policy meeting did not dish up and surprises. The RBA left the Overnight Cash Rate (OCR) unchanged and reiterated that the Australian economy would shrink by 6.0% in 2020.
Today’s U.S. data includes Institute for Supply Management non-manufacturing Purchasing Managers Index. The index is expected to drop to 36.8 in April compared to 52.5 in March. Canada trade data is also on tap.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
