The Canadian dollar is wallowing in a well-worn range, trapped between high oil prices and dovish central banks. The Reserve Bank of New Zealand (RBNZ) raised the bar on the "dovish scale" overnight when it appeared to telegraph a cut in its benchmark Overnight Cash Rate. (OCR)
The RBNZ policy statement read: "Given the weaker global economic outlook and reduced momentum in domestic spending, the more likely direction of our next OCR move is down." They justified their view by noting that core inflation remained below their 2% target midpoint.
The RBNZ is concerned about weakening global growth which forced dovish monetary policies on the central banks of its major trading partners. That stance put upward pressure on the New Zealand dollar, which the RBNZ wanted to avoid.
NZD/USD was thrashed on the news, plummeting from $0.6906 to $0.6796 in a heartbeat. Prices are hovering just above the low in early Toronto trading. The Australian and Canadian dollars dropped in concert with the kiwi.
European Central Bank (ECB) President Mario Draghi revisited his dovish outlook in a speech this morning. He said that the ECB could delay its planned interest rate hike that is expected at the end of the summer. He is concerned about slowing euro-zone growth and warned: "Just as we did at our March meeting, we would ensure that monetary policy continues to accompany the economy by adjusting our rate forward guidance to reflect the new inflation outlook."
EUR/USD came under pressure following Draghi’s remarks, but prices rebounded in Toronto trading this morning. Nevertheless, EUR/USD is rangebound inside at $1.1215-$1.1515 range, which is also limiting Canadian dollar moves.
The British pound opened well above its overnight low of $1.3167 as the Brexit drama continues to play out in the House of Commons. Prices are supported by rising expectations that a "no-deal" Brexit will be avoided. Prime Minister Theresa May’s Brexit plan, which has already been rejected twice, may get another kick at the can tomorrow. Her plan was endorsed by the European Union and is still the only game in town.
Uncertainty around GBP/USD price action because of Brexit has acted like a wet blanket for FX markets in general and Canadian dollar as well.
FX traders are keeping an eye on equity markets. The major European indices are in the red and US equity futures point to a negative open on Wall Street. Equity traders are spooked by recession concerns which are exacerbated by falling US Treasury yields.
U.S. and Canadian trade reports are due today but not likely to cause much of a stir.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
