The Canadian dollar is trading in early Toronto markets at the low end of its overnight range. The currency is closely tracking West Texas Intermediate (WTI) prices, and they are at session lows. Oil traders are a nervous bunch, lately. American Petroleum Institute (API) and Energy Information Admiration (EIA) weekly oil stocks change reports showed larger than expected declines in U.S. crude inventories on Tuesday and Wednesday. The news lifted prices to $52.40 U.S./barrel yesterday afternoon. However, another report showing that U.S. crude production was a record 11.9 million barrels per day, last week saw yesterday’s entire rally reversed. Still, the price action is just noise inside a $50.40-$53.30/barrel range that has contained prices for the past week.
Selling pressures against the Australian and New Zealand dollars also contributed to the weaker Canadian dollar profile. NZD/USD led the way lower because of fears that slowing Chinese economic growth could lead to the Reserve Bank of New Zealand being forced to cut rates. It is a bit of a stretch, but in a low news environment, it was all that was needed to spark selling.
The Canadian dollar is vulnerable to selling stemming from GBP/CAD demand. The U.K. House of Commons decisively rejected Prime Minister Theresa May's Brexit plan. The government needs a new plan in place by March 29, to avoid a "no-deal" Brexit. That is a result that none of the political parties want which improves the chances that the U.K. can reach some sort of "soft-Brexit" agreement. It also raised hopes that the March 29 Brexit deadline could be pushed back to July. GBP/USD traders believe the failure of the Brexit vote implies a more currency favourable option will be negotiated and that has underpinned prices. It has also sparked GBP/CAD demand, which is dragging down the Canadian dollar.
EUR/CAD demand could be another source of weakness for the loonie. EUR/USD dipped and tested support at $1.1372 overnight on selling of EUR/GBP and due to European Central Bank President Mario Draghi saying that euro-zone "stimulus is still needed." Prices have since recovered, and EUR/CAD demand was seen.
U.S. politics are putting a crimp on FX markets. The government shutdown has prevented some key economic reports from being released which hampers fundamental traders from getting an accurate read of the U.S. economy.
China’s Vice Premier is leading another trade delegation to Washington for talks on January 30 and 31. The news suggests that China and the Americans are motivated to put a new trade deal in place which helps to alleviate bearish commodity currency sentiment. Unfortunately, the Republican party may be renewing trade hostilities with the euro-zone. The head of the Senate Finance Committee said that President Trump might slap 25% tariffs on European auto imports to jump-start trade negotiations.
There are only minor U.S. economic reports on tap this morning. They include Philadelphia Fed Manufacturing Index and the weekly jobless claims data.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
