The Canadian dollar is under renewed pressure. It traded very quietly in a dull overnight session but started sinking rapidly when Toronto traders got to their desks. Falling oil prices and broad U.S. dollar strength vs the majors lifted USDCAD from the Toronto opening level of $1.2933 to a peak of $1.2982.
The Canadian dollar is struggling due to a lack of domestic data. However, that will change on Wednesday with the release of the Ivey Purchasing Managers Index, Merchandise Trade data and Building Permits. That is followed by the quarterly Bank of Canada Financial System Review on Thursday and then Canadian employment data on Friday.
BoC Governor Stephen Poloz sounded modestly upbeat about the Canadian economy in interviews on the weekend at the Whistler G-7 Finance Ministers meetings. He told reporters that he was encouraged by strong business numbers despite uncertainty over the North American Free Trade Agreement. He acknowledged it was a bit lower than usual but said it was still making a significant contribution to growth.
The recent Bank of Canada interest rate statement not only left traders expecting a 25-basis-point rate hike at the July meeting but kept the prospect of another hike in 2018 on the table. Canadian dollar benefits from that statement have since dissipated.
President Trump continues to rail against unfair trade practices by Canada and other countries, and that has undermined the Canadian dollar.
The Canadian dollar has been side-swiped by other issues impacting FX markets. The Italian election and the rise of a "euro-unfriendly” government have put downward pressure on EUR/USD, which in turn bolstered broad demand for U.S. dollars.
U.S. Treasury yields surged in May which underpinned the greenback and undermined the Canadian dollar. Those yields are well below their peak, but the trend is higher. Concerns about widening USD/CAD interest rate differentials have added to to the Canadian dollar’s woes.
Oil prices have been another barrier to Canadian dollar strength. The loonie did not get much support when West Texas Intermediate (WTI) oil prices were pushing above $72.80/barrel, but the slide to $64.35 (current level) gave traders another excuse to sell Canadian dollars.
USD/CAD will find direction from broad U.S. dollar moves today. Prices could be impacted by stronger than expected U.S. economic reports which include Markit Services Purchasing Managers Index PMI and Institute for Supply Management Non-Manufacturing PMI.
