The Canadian dollar is drifting lower to start the week. It is Martin Luther King Day in America and U.S. markets are closed which means a very quiet FX session for Canadian traders. The overnight action was subdued. Asia opened quietly, but U.S. dollar demand emerged after China released economic growth data Q4 GDP rose 6.4%, y/y and 1.5% q/q. The data was expected but media headlines shouting "China growth at 28-year low" made traders a bit nervous and they bought U.S. dollars. Asia equity traders were not concerned, and the major equity indices closed in positive territory.
The Canadian, Australian and New Zealand dollars declined as did the Swiss franc and British pound. The Japanese yen inched higher, and EUR/USD was unchanged in early Toronto trading. FX traders are likely to stay close to home today as the await significant data releases, central bank meetings and political developments later this week.
Brexit dictates the British pound direction. U.K. Prime Minister Theresa May’s Brexit plan was thoroughly trounced in a House of Commons vote last week, and she is planning to reveal "Plan B" later today. Her plan seems to be based on extracting more concessions from the European Union, and the E.U. may be ready to listen. E.U. Chief negotiator Michel Barnier said "As I see, following carefully the political debate in London, this debate is much more now on the future relationship. As I said last week at the E.U. parliament, if the U.K. want to be more ambitious, we are ready to be." The comments helped GBP/USD to recoup earlier losses, and it is trading in Toronto at its overnight peak. Canadian dollar traders are concerned about Brexit due to its impact on GBP/CAD demand.
The annual Davos World Economic Forum gets underway on Tuesday. This year’s event may not attract much interest from FX traders because U.S. President Trump will not be attending. His larger-than-life and combative personality tends to spark market-moving headlines, especially in forums that attract as much media as Davos.
The European Central Bank policy meeting is slated for Thursday. ECB President Mario Draghi may have tipped his hand last week when he said that the euro-zone economy was slowing and still needed plenty of stimulus. Those comments suggest a cautious tone to this week's policy statement and press conference. If so, EUR/USD should remain under pressure which will undermine the Canadian dollar.
Oil prices surged on Friday, and they spent the Asian and European session consolidating the gains. Prices are supported by optimism for a trade agreement between the U.S. and China. If so, they expect higher oil prices because of renewed global growth.
There isn’t any Canadian or U.S. data available today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
