People want the Canadian dollar. The local currency was the only G-10 major to gain between yesterday’s Toronto close and this morning’s open. Oil prices have a lot to do with the move as do the quick unwinding of short Canadian dollar positions after short-term technicals turned bullish for the Canadian dollar.
The Canadian dollar has been grinding higher since last Thursday, coinciding with higher oil prices. West Texas Intermediate climbed to $56.40 U.S./barrel overnight. Prices continue to be underpinned by rising hopes that China and the U.S. will reach a trade agreement. Those hopes got added justification yesterday when President Trump told reporters that the trade talks were going well and implied that he would be willing to extend the March 1 deadline for a tariff increase to 25%. In an interesting twist, Bloomberg reported the U.S. asked China not to devalue its currency, which contributed to a drop in USD/CNY.
The oil price rally peaked in Europe, and WTI prices retreated to $55.62/b in early Toronto trading. The drop was because of a combination of profit taking and a report from the Energy Information Administration (EIA) that U.S. shale production would reach 8.4 million barrels per day in March. However, losses were limited because US sanction against Venezuela and Iran combined with production cuts by the Organization of the Petroleum Exporting Countries and an expected increase in crude demand from China (after a trade deal is signed) would more than offset the U.S. supply increase.
The Canadian dollar may have got a small lift from GBP/CAD selling. The British pound soared yesterday ahead of Prime Minister Theresa May’s meeting with European Commission President Jean-Claude Juncker. Traders were hoping that she would be able to secure some concessions on the Irish border backstop issue. GBP/USD peaked at $1.3075 in Europe before plunging to $1.3027 on news that three Conservative MPs quit to join a new party. Those defections further weakened her minority government.
Overnight, FX markets were choppy but still rangebound. The major G-10 currencies pared back some of yesterday’s gains. AUD/USD rallied after wage price data but gave back those gains in Europe. USD/JPY was torn between buying because of weak trade data and selling because of soft U.S. Treasury yields.
The Canadian dollar and the rest of the G-10 majors' price action stalled in Toronto trading ahead of the release of the Federal Open Market Committee minutes from the January 30 meeting. The FOMC adopted a dovish bias and removed the reference to “some further gradual increases in the target range." Markets saw that as evidence the Fed was on hold. Today, they are hoping the minutes confirm that the Committee sees it the same way as they do.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
