The Canadian dollar rallied when the U.S. dollar was under pressure, which explains why it is sinking when the U.S. dollar gains. It isn’t alone.
The G-10 major currencies are suffering alongside the Canadian dollar as the greenback starts to recoup some of its summer losses. The loonie is getting additional negative pressure from the steep drop in crude prices this week.
West Texas Intermediate, the North American benchmark dropped from $43.54/U.S. barrel on Monday to $40.64 U.S./barrel today, a loss of 6.7%. The drop occurred despite a 9.3-million-barrel reduction in U.S. crude inventories. Hurricane Laura skewed the results, and they were ignored.
However, oil prices are having less and less impact on Canadian dollar pricing due to the decimation of the Alberta energy industry, in part because of the Federal government’s anti-oil policies.
The Canadian dollar is tracking EUR/USD moves closely, and the single currency has been under pressure since peaking at $1.2010 on Tuesday.
The technicals are bearish below $1.1840 and looking for a move below 1.1750 to lead to 1.1570. EUR/USD saw a bit of support from an uptick in the August Services Purchasing Managers Index to 50.5. Those results were offset by the weaker than expected Eurozone Retail Sales report. July Retail Sales fell 1.3% m/m compared to the forecast for a 1.5% gain.
EURUSD traders are also concerned about the September 10 European Central Bank policy meeting. Some analysts expect the ECB to adopt the Fed’s "average inflation targeting "policy while issuing a dovish statement.
GBP/USD tracked EUR/USD lower falling from $1.3358 to $1.3246. Weaker than expected U.K. Services PMI data (actual 58.8 vs previous 60.1) contributed to the selling pressure.
USD/JPY continues to consolidate in a 105.00-107.00 range. USD/JPY is trading at the top of its overnight 106.15 to 106.49 range, with prices supported by broad U.S. dollar strength, and expectations for a robust U.S. economic rebound.
AUD/USD has been sliding since peaking at $0.7410 on Tuesday. Broad U.S. dollar demand and a narrower-than-expected Australia trade surplus weighed on prices overnight. NZD/USD followed AUD/USD lower.
Canadian dollar direction continues to be dictated by broad U.S. dollar sentiment. Canada employment data is due tomorrow, but the results will not have much impact on USD/CAD trading.
They will be overshadowed by the U.S. non-farm payrolls number and its implication on the American economic recovery.
Canada’s trade deficit is forecast to shrink from $3.2 billion to $2.5 billion. Today’s U.S. data includes Jobless Claims, Trade and Institute for Supply Management Services PMI.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
