Oil prices extended their 2019 rally again overnight and in early Toronto trading. West Texas Intermediate (WTI), the North American benchmark crude price touched $59.55 U.S./barrel, a level last seen in November 2018. The oil price rally injected some life into the Canadian dollar, and USD/CAD dropped from the European high of $1.3342 to a low this morning of $1.3206.
Oil prices rallied after the Organization of the Petroleum Exporting Countries (OPEC) announced they cancelled their scheduled meeting in April.
The news was a tacit confirmation of an extension to the production cut agreement that took effect in January. Prices were also underpinned by the ongoing Iran and Venezuela sanctions and by improved sentiment for a U.S. and China trade agreement.
The rise in oil prices led to Canadian dollar demand, but there were other factors at work, as well. The U.S. dollar was suffering from pre-Federal Open Market Committee (FOMC) angst which sparked selling against all the major G-10 currencies. EURUSD is trading at a two-week high of $1.1360, after climbing from an overnight low of $1.1334. Traders dismissed weaker than expected German ZEW Survey data, in part because of the modest improvement in the euro-zone ZEW survey.
USD/JPY was weighed down by soft U.S. Treasury yields. The 10-year U.S. Treasury yield is still below 2.60%, a far cry from the 3.18% seen last November.
The broad U.S. dollar weakness is directly attributable to expectations ahead of Wednesday’s FOMC meeting. The Fed abruptly shifted to a dovish policy stance January 30, after a hawkish outlook in December. Fed Chair Jerome Powell blamed the shift on "cross-currents" and said that the FOMC is data-dependent. Analysts cut their rate hike forecasts in 2019 and now expect only one increase and that won’t happen until the end of the year. Markets are looking forward to updated "dot-plot" forecasts as well.
The bearish sentiment ahead of the FOMC meeting and a lack of actionable, top-tier economic data have undermined the U.S. dollar and lifted the Canadian dollar as well.
Canadian dollar traders will be keeping an eye on the Federal budget that will be tabled at 4:00 pm today. It should not be a factor for markets unless the government opens up the spending taps to distract voters from the SNC-Lavalin and other debacles. It is an election year, and pre-election budgets tend to offer measures to encourage voters to cast their ballots for the incumbent party.
There isn’t any U.S. or Canadian data of note available today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
