USD/CAD - Broad U.S. dollar demand undermines Canadian dollar

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The U.S. dollar is in demand across the board, and the demand is weighing on the Canadian dollar. The loonie is still well above its worst levels for 2019, but it has been grinding lower for the past week, mostly due to external influences. The lingering effects of the strong U.S. non-farm payrolls report, weaker than expected euro-zone data and elevated "no-deal" Brexit concerns sparked demand for U.S. dollars.

Oil prices have been a big factor in day to day Canadian dollar prices swings, and West Texas Intermediate (WTI) oil has traded erratically lately. WTI bounced in a $52.85 U.S./barrel-$55.70/b range since February 1. The failure to extend gains above $55.70 raised concerns that a short-term top was in place. That sentiment was encouraged by American Petroleum Institute (API) and Energy Information Administration (EIA) reports that U.S. crude inventories increased, suggesting that supply may be outpacing demand, which also weighed on the Canadian dollar.

U.S. President Trump delivered his annual State of the Union address on Tuesday night. He was expected to provide some details on a new infrastructure spending plan which sparked a bit of demand for the so-called "risk currencies". It didn’t happen. The U.S. dollar firmed as the risk currencies were sold.

Overseas developments spurred U.S. dollar demand and by default, Canadian dollar selling. The European Union’s Winter Economic Forecast, released today, downgraded 2019 euro-zone growth from 1.9% to 1.3%. It also downgraded the 2019 inflation forecast to 1.4% from 1.7%. The downgrades were expected. Nevertheless, they reinforced and validated European Central Bank Mario Draghi’s recent dovish monetary policy statement and press conference. EUR/USD selling also encouraged USD/CAD buying.

The British pound has been centre stage. The risk of a "no-deal" Brexit increased this week. E.U. officials have flatly rejected reopening Brexit discussions. E.U. Council President Donald Tusk tweeted: "I've been wondering what that special place in hell looks like, for those who promoted #Brexit, without even a sketch of a plan how to carry it out safely." That tweet triggered a wave of GBP/USD selling and the "risk aversion" sentiment weighed on the Canadian dollar

The Bank of England policy meeting a quarterly inflation report was released today. The BoE left U.K. interest rates unchanged a 0.75%. They noted that U.K. growth slowed and said inflation was back to its 2.0% target. They noted that future interest rate increases should be gradual and limited which fueled a wave of GBP/USD selling. The move was reversed during Governor Mark Carney’s press conference.

While that was going on the greenback continued to drift higher vs the majors, and the Canadian dollar traded lower.

There isn’t any major U.S. or Canadian economic data available today. Canadian dollar traders are looking ahead to Friday’s Canadian employment report.

Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
Learn how KnightsbridgeFX can help you save up to 2% when buying or selling US dollars compared to your Canadian bank’s rates – click here to compare bank rates