The Canadian dollar sank, soared, then sank again, in a wild Toronto session yesterday. Month-end portfolio demand, and stop loss-hunting saw the currency pair bounce erratically inside a USD/CAD $1.3140-1.3204 range before finishing the day at $1.3178.
Things were much calmer in Asia. The Canadian dollar traded higher alongside rising West Texas Intermediate (WTI) oil prices and extended those gains in Toronto. Canadian December Gross Domestic Product could be problematic for the currency. Q4 GDP was expected to rise 1.2% q/q which is well below the 2.0% rise in November. Economists suggest the weakness in the data may be temporary as it reflects the steep drop in oil prices during the period.
The Canadian dollar was not the only currency to rise in an active overnight session. China Caixin Manufacturing Purchasing Managers Index was 49.9, well above the 48.5 that was predicted, and that news gave the commodity bloc currencies a lift. The Australian dollar got an added lift after the Reserve Bank of Australia Commodity Price Index rose 9.1%. (forecast 7.2%) The U.S. followed through on reports that Uncle Sam would delay imposing a tariff increase of 25% on Chinese imports that was slated for March 1. The news was greeted warmly by Asia equity traders. The major Asia equity indices rallied led by a 2.19% jump in the Shanghai Shenzhen 300 index.
The Japanese yen was the biggest loser overnight. USD/JPY climbed from 111.33 to 111.96 in early Toronto trading supported by a steep gain in U.S. Treasury yields and a more favourable risk-sentiment environment.
The modest "risk-on" sentiment permeated European equity indices as well, and the major bourses are higher on the day. There was plenty of euro-zone economic data. German Retail Sales gains offset disappointment from soft Markit PMI data. Euro-zone February PMI beat expectations and was 49.3. The news reversed downside selling pressure, and the single currency rallied to $1.1384 in early Toronto trading.
GBP/USD retreated steadily overnight. U.K. economic data wasn’t a factor. Instead, traders booked profits after this week’s sharp rally. The odds that the U.K. leaves the European Union without a deal have been greatly reduced this week. However, uncertainty about how Brexit will develop in the coming days led to pre-weekend profit-taking.
The Canadian dollar is unlikely to move dramatically in either direction around the USD/CAD $1.3150 area. That’s because of next week’s Bank of Canada (BoC)policy meeting on Wednesday. The BoC pivoted to a dovish bias at the January meeting citing global uncertainties and concerns about the impact of plunging oil prices on domestic growth. WTI oil prices have risen 16% since then. However, inflation has been muted, suggesting the BoC keeps policy unchanged.
There is plenty of U.S. data available this morning including Institute for Supply Management Manufacturing PMI, Personal Income/Spending and Michigan Consumer Sentiment.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
