USD/CAD - Canadian Dollar on a Roll

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The Canadian dollar has a bit of spring in its step these days. USD/CAD plunged to $1.3228 overnight from $1.3565 at the end of May, a 2.5% gain. What makes that gain so impressive is that it occurred even though West Texas Intermediate oil prices dropped about 15%.

The Canadian dollar had a big day on Friday, thanks to US and Canadian employment reports. The U.S. non-farm payrolls data was far weaker than expected, while the Canadian data was stellar. The soft U.S. data lowered the three-month trend to 151,000 compared to 198,000 previously. Traders concluded that if this weak data is supported by other weak reports, the Fed will cut interest rates. The CME Fedwatch tool suggests the probability of a rate cut at the July 31 meeting is 67%.

Canada gained 27,700 jobs in May, easily beating the forecast of 8,000 and that news combined with the U.S. data sent the Canadian dollar soaring. However, the details were a tad less robust. In all, 61,000 of the new jobs were in the self-employed category. Self-employed is how many recently unemployed workers describe themselves as they seek gainful employment.

The U.S. dollar closed on Friday with losses against the G-10 majors. It managed to recoup some of those losses in overnight trading and opened in Toronto on a mixed, to firm note. The Mexican peso, Canadian, Australian, and New Zealand dollars gapped lower at the Asia open following the news that the U.S. cancelled planned tariffs on Mexico imports that were to go into effect today. The Americans appear satisfied with Mexico’s efforts to address some of the immigration concerns.

However, with Trump, a deal is never a deal. He tweeted words to that effect on Sunday saying, “There is now going to be great cooperation between Mexico & the USA, something that didn’t exist for decades. However, if for some unknown reason... .....there is not, we can always go back to our previous, very profitable, position of Tariffs."

The Canadian dollar gains in early Asia quickly evaporated as a surge in USD/JPY sparked broad US dollar demand. USD/JPY rose as risk aversion trades were unwound after the Mexico news and due to a rally in U.S. Treasury yields.

Several European countries were closed today for Whit Monday holidays. Those that were open joined Asia in buying U.S. dollars. EUR/USD dropped to $1.1292 from $1.1330 and is hovering around 1.1300 in early trading. Traders are bearish following a Reuters story saying "policymakers are open to cutting the (European Central Bank)’s policy rate again if economic growth weakens in the rest of the year and a strong euro hurts a bloc already bearing the brunt of a global trade war.”

GBPUSD sellers emerged after a series of weaker than expected economic reports underscored the impact of Brexit on the U.K. economy.
U.S. JOLTS survey and Canadian Housing Starts are the only data of note today.

Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
Learn how KnightsbridgeFX can help you save up to 2% when buying or selling US dollars compared to your Canadian bank’s rates – click here to compare bank rates