The Canadian dollar had a wild 24 hours, but despite the volatility, it opened in Toronto virtually unchanged from where it began on Wednesday. Canadian dollar direction is driven by a mix of oil price action and broad risk sentiment.
USD/CAD extended Wednesday’s rally and climbed to $1.4171 in Asia, as markets flirted with "risk-off" sentiment.
It was not alone. AUD/USD and NZD/USD also dropped. The outlook started to change after Australia reported a stellar trade report.
Australia’s trade surplus surged to a record $10.6 million, fueled by a 14% jump in exports. A few minutes later, China reported that April exports rose 3.5%, compared to forecasts for a 15.7% decline. Suddenly, everyone wanted the commodity bloc currencies and AUD, NZD, and CAD rallied steadily into the Toronto open.
Central Bankers were busy. Denmark’s Norges Bank surprised markets and cut its benchmark rate to 0% from 0.25%, due to the ongoing economic slowdown from the coronavirus. The Bank of England announced it would leave interest rates and quantitative easing amounts unchanged at today’s meeting, which was expected. The also issued a negative economic outlook. They predicted a 14% decline in 2020 Gross Domestic Product and a Q2 GDP drop of 25%. GBP/USD drifted lower in Asia, rallied into and during the BoE meeting, reaching $1.2417, and then retreated to $1.2350 in Toronto trading.
EUR/USD traded quietly, in a $1.0780-$1.0815 range. The improved risk tone following the China exports data underpinned prices, but gains were capped by weak German Industrial production, and sluggish Eurozone growth concerns.
USD/JPY enjoyed steady demand thanks to the China trade data, the unwinding of some safe-haven demand trades and steady U.S. Treasury yields.
The Canadian dollar received an added boost from the recovery in oil prices. Yesterday, WTI bottomed out at $22.60/barrel and then consolidated in a $22.60-$24.30 range. The topside level broke in Asia and prices rallied to $26.60/b by today’s Toronto open.
Optimism around rebounding China growth, combined with Opec production cuts are supporting prices.
FX traders are cautious ahead of today’s U.S. Initial Claims data. The forecast is for the rise in claims to slow from 3.839 million reported last
Thursday, to three million today. Traders are also keeping a watch on China/U.S. relations, which have deteriorated after Trump threatened new tariffs due to China’s handling of COVID-19.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
