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The Canadian dollar sank in overnight trading, caught up widespread US dollar demand on fresh Italian politician concerns.” Said Rahim Madhavji, President of KnightsbridgeFX, a Canadian currency exchange company that helps Canadians get better exchange rates than the banks.
Italy went to the polls on March 4. There wasn’t a winner and politicians have been attempting to cobble together a coalition government since then. Last week, it appeared that the 5 Star Movement and Northern League would form a coalition government. Those plans were crushed on the weekend when the Italian president vetoed the coalition's choice for Economic Minister.
Experts are predicting another election in September which they believe will be a referendum on the Euro due to the proliferation of anti-Euro and Euro-skeptic parties.
EURUSD plunged from 1.1648 at Friday’s close to 1.1510 in Europe, this morning. Euro USD technicals are bearish while prices are 1.1705. Support is at 1.1470 and 1.1430.
Domestic issues worsened the Canadian dollar's woes. There is a strong possibility that Canadian Pacific Railway workers will go on strike. A prolonged work stoppage could have a negative impact on GDP and impact the Canadian dollar. A steep drop in oil prices added another layer of negative pressure to the Canadian dollar. West Texas Intermediate has fallen from $72.90/barrel on May 22 to $66.32 in Europe today. Falling oil is loonie negative. Oil traders cut positions after reports that Saudi Arabia and Russia may agree to a production increase at the June 222 Opec meeting. The outlook for oil will have a direct impact on the Canadian dollar forecast.
Another primary concern for Canadian dollar traders is the Bank of Canada (BoC) monetary policy decision due on May 30. The BoC is expected to leave rates unchanged. The risk is of a dovish statement due to US threats of new tariffs, this time on car imports.
The shift to risk aversion put more downward pressure on USDJPY which was already sinking due to a drop in US Treasury yields. 10-year Treasury yields slid to a low of 2.866% but have inched higher in New York trading.
Sterling traded down to 1.3203, a level last seen six months ago. Dovish expectations for the Bank of England, Brexit concerns and broad US dollar strength fueled the move.
There hasn’t been much in the way of actionable economic data from Asia, Europe or the US in the past 24 hours and there isn’t any significant data today. Instead, traders will look ahead to Wednesday’s month-end portfolio rebalancing flows and Friday’s US employment report.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians.
