The Canadian dollar has been under pressure for a while. Prices accelerated lower after the December 5 Bank of Canada (BoC) monetary policy statement. The dovish tone was a 180-degree turn from the hawkish comments in the October statement. Optimism from the freshly minted U.S. Mexico Canada Agreement (USMCA) on trade was replaced by concern over rising US/China trade tensions and falling oil prices. Economists and analyst quickly reduced their forecasts for BoC rate hikes in 2019. The Canadian dollar couldn’t even hang on to gains following a surprisingly robust domestic employment report.
Traders turned their attention to elevated global trade risks, soft oil prices and weak equity markets. The Organization of the Petroleum Exporting Countries and Russia announced new crude production cuts of 1.2 million barrels per day in a move designed to shore up prices. The results so far have been disappointing. West Texas Intermediate has managed to stay above $50.00 U.S./barrel but has been unable to rise above $55.00/b. Even the temporary shutdown of a major oilfield in Libya and production cuts from Alberta have sparked a sustained price rise. The International Energy Agency wrote in the December report, released today, that it expected global demand to exceed supply in 2019.
The positive impact on prices from this statement was offset when IEA said that the U.S. would become even more dominant over time. That news knocked WTI from $51.55/barrel to $50.38/b. It also undermined the Canadian dollar.
The Canadian dollar didn’t get any benefit from the improving U.S./China trade outlook. Yesterday, China agreed to reduce tariffs on imports of U.S. cars and to start purchasing U.S. soybeans. Analysts see that as evidence that China is willing to work with the American’s to resolve the dispute. AUD/USD and NZD/USD eked out gains on the news, but the Canadian dollar was sidelined. Traders are a tad concerned that China’s wrath over the arrest of the Huawei CFO may be directed at Canada rather than the U.S.
Canadian dollar trading took a back seat to U.K. developments. Yesterday, British Prime Minister Theresa May faced a "non-confidence" vote by her own party. She won by a margin of 200 to 117. GBP/USD rallied on the news as did GBP/CAD. However, her victory didn’t do much to reduce the risk of a "no-deal" Brexit, which helped to stoke risk-aversion fires.
The Canadian dollar was also ignored overnight as traders turned their eyes to Frankfurt and the European Central Bank (ECB) headquarters.
The ECB left rates unchanged, and the statement was as expected, although it has a dovish bias. ECB President Mario Draghi’s press conference is starting shortly.
There isn’t any actionable U.S. or Canadian data released this morning. Traders will be looking for Wall Street and the ECB to provide direction.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
