The Canadian dollar is on the sidelines. It is not alone. The U.K. parliamentary vote on Prime Minister Theresa May’s Brexit plan takes place at 2:00 p.m. EST. The outcome is almost certain: Theresa May will lose the vote. However, the ramifications from a loss are uncertain as there are a plethora of possibilities. FX traders are cautious and do not want to be caught on the wrong side of what could be large price swings.
The Canadian dollar attempted to rally alongside the G-10 major currencies in early Asia trading overnight. China announced that it planned to cut taxes to help stimulate its economy. China’s Vice Finance Minister said the precise cuts would be in a government report or the budget. A senior Peoples Bank of China (PBoC) official said it would take steps to encourage banks to start lending. Monday’s risk aversion shift was forgotten, and traders scrambled to buy riskier assets. AUD/USD and NZD/USD rose alongside a rally in USD/JPY. Those moves were unwound when Europe opened as traders there were more concerned with currency risks from the U.K. vote.
The Canadian dollar drifted lower in early Toronto trading this morning, taking its direction from broad U.S. dollar moves. This morning’s moves reflect another shift toward risk aversion sparked by concerns of weaker-than-expected U.S. bank earnings. This morning, JP Morgan announced Q4 earnings per share of $1.98 which was below the $2.20 analysts had forecast. The news helped to erase a small increase in U.S. equity futures suggesting a flat open for Wall Street.
The Canadian dollar is garnering a little support from steady to firm oil prices. West Texas Intermediate (WTI) climbed from $50.66/barrel to $51.35/b and are trading at $51.15 as of 7:45 a.m. EST. China’s attempts to jump-start their economy helped to boost prices on expectations of higher demand. U.S. crude inventories declined last week and will continue to underpin prices if today’s American Petroleum Institute’s weekly data shows another drop.
The Canadian dollar is also being undermined by the Bank of Canada’s dovish policy stance. The BoC downgraded its 2019 growth outlook from 2.1% to 1.7% and blamed low oil prices for the bulk of the cut. The Bank is also taking note of housing market softness because of evidence showing recent rate increases is starting to impact households. Economists have pushed out their forecast for the next BoC rate increase until the summer.
The ongoing U.S. government shutdown has prevented the release of economic reports, and the lack of data is hampering fundamental traders. There isn't any Canadian data on tap today. FX trading will be muted until this afternoon Brexit vote results are known.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
