The Canadian dollar is trading erratically inside a USD/CAD range of $1.3360-$1.3560. Prices are being pulled in opposite directions but COVID-19 recovery optimism, and concerns that the confidence may be misplaced.
The Organization for Economic Cooperation and Development (OECD) appears to be in the pessimistic camp. It predicted Canada’s 2020 Gross Domestic Product would fall 8.0% if there is only one round of COVID-19. A second outbreak would knock another 1.4% off the GDP rate, bringing it to -9.4%. They do not have high expectations for an economic rebound either. They noted, "The rebound will not be dynamic enough for output to attain pre-COVID-19 levels by the end of 2021 under either scenario."
Canadian dollar traders did not react to the OECD report. They are tracking U.S. dollar sentiment, and at the moment that sentiment is bearish, which is supporting the currency.
The OECD didn’t mince words about the global economic outlook, describing it as "highly uncertain," and predicting a 6.0% drop in global GDP for 2020. It said ”The COVID-19 pandemic is a global health crisis without precedent in living memory. It has triggered the most severe economic recession in nearly a century and is causing enormous damage to people’s health, jobs and well-being."
The OECD report was a distraction for traders who were largely sidelined ahead of today’s Federal Open Market Committee meeting. Traders may be overly cautious as most expectations are that the Fed leaves interest rates and policy unchanged. Last week’s stellar U.S. non-farm payrolls report gives them room to keep their "wait-and-see" approach.
Oil prices tumbled after the American Petroleum Institute (API) released their weekly crude inventories report. U.S. crude stocks rose 8.4 million barrels in the week ending June 5. West Texas Intermediate (WTI) dropped from $39.05/barrel on Tuesday to $37. 75 today.
The increase in supply follows news that U.S. Shale producers are reopening wells which may offset the latest production cut extension by the Organization of the Petroleum Exporting Countries
FX trading was quiet in Asia then became livelier in Europe. EUR/USD bounced between $1.1332 and $1.1388 and is trading in Toronto at the top of the range. The battle between risk bulls and bears has the bulls pulling ahead, which is undermining the U.S. dollar. There wasn’t any
eurozone data of note.
U.S. Consumer Price Index data is expected to be 0.0% but a non-factor for traders due to the upcoming Fed meeting.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
