The Canadian dollar traded lower yesterday but managed to stem the losses in a quiet overnight session. The reprieve came in the form of a rebound in crude oil prices. Oil traders have pared their concerns about the rising risk of a global economic slowdown and focused on short-term concerns that increasing demand amidst reduced supply would underpin prices. West Texas Intermediate rallied from a low of $58.20 U.S./barrel yesterday to $59.40 U.S./b overnight and then added to those gains in early Toronto trading with WTI trading at $59.67/b.
U.S. sanctions against Iran and Venezuela combined with reports that the Organization of the Petroleum Exporting Countries plans to announce an extension of its production cuts at its May meeting and hopes of a U.S./China trade deal should limit WTI downside risks.
The Canadian dollar got a bit of a lift from an improvement in risk sentiment in Asia. A small increase in 10-year U.S. Treasury yields gave USD/JPY a lift which took prices above minor resistance at 110.20. That rally gave AUD/USD a lift which helped underpin the Canadian dollar.
NZD/USD attempt to rally but the move ended quickly, and prices drifted lower. Traders are biding their time until this afternoon’s Reserve Bank of New Zealand policy meeting. The RBNZ is widely expected to leave the OCR rate unchanged and issue a dovish statement.
The British pound traded erratically inside a $1.3160-$1.3249 range. Pessimistic Brexit sentiment gave way to optimism after British Members of Parliament voted 329-302 to take control of the Brexit process. The result is that the House of Commons will hold a series of votes on various Brexit measures. Unfortunately, the votes are not binding on the government.
The improved risk tone is evident in global equity markets Asia, and European indices are all higher led by a 2.25% rally in the Nikkei 225. Apple (NASDAQ:AAPL) is higher in pre-market trading which has helped turn U.S. equity futures positive, suggesting a higher opening on Wall Street.
The Friday/Monday furor over the U.S. Treasury yield curve inversion has dissipated even though the three-month-10 year Treasury Yield curve is still inverted. Analysts have downplayed concerns because although the inversion suggests a recession is possible, it takes about two years for the recession to occur. Other economists suggest that the Fed’s and other central banks actions in buying trillions of dollars of bonds, flattened the yield curve, raising the risk of temporary inversions.
FX markets are in a state of flux due to a lack of top tier economic data. That won’t change today, even with the release of Housing Starts, Building Permits and Case-Shiller Home Price Index.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
