The Canadian dollar rally stalled yesterday after failing to break below USD/CAD support in the $1.3290 area. The currency had found plenty of buyers since last Friday’s U.S. and Canadian employment reports were released. The slightly weaker-than-expected Canadian data combined with the higher than forecast Non-farm payrolls gain drove the currency lower until a surge in oil prices led to renewed Canadian dollar demand.
Oil prices resumed their uptrend overnight despite the American Petroleum Institute’s weekly crude inventories data showing a 4.09-million-barrel increase. West Texas Intermediate (WTI) prices continue to be underpinned by forecasts that crude demand will outstrip supply in the second half of 2019. The U.S. sanctions against Iran and Venezuela combined with hostilities in Libya exacerbated the impact of production cuts by the Organization of the Petroleum Exporting Countries and Russia. However, the rally is running into resistance, in part because Russian officials have suggested that production cuts have served their purpose and should be eliminated. That sentiment has limited Canadian dollar upside.
The Canadian dollar is also at the mercy of broad U.S. dollar direction against the major G-10 currencies. Concerns that the U.S. economy is slowing are more than countered by sentiment that even a slowing U.S. economy still outperforms that of the rest of the G-10.
EUR/USD has inched higher during the past few days ahead of this mornings European Central Bank (ECB) meeting. The ECB surprised markets last month when they pushed out forecasts for the next rate hike until the end of 2019 from the end of the summer previously. The risk is that today’s statement will not be as dovish as the March statement which could lift EUR/USD. If so, the Canadian dollar would grind higher as well.
The European Council meets this afternoon (evening in Brussels) to discuss the U.K.’s request for another delay to article 50. E.U. officials have said that they wouldn’t entertain a Brexit extension unless the U.K. offered up something new to Prime Minister Theresa May’s plan. If they stick to that script, the U.K. will leave the E.U. on Friday without a deal. However, conventional wisdom suggests that the E.U. will offer an extension to the end of 2019. If so, the news would be positive for global risk sentiment. The so-called “risk” currencies would rally alongside GBP/USD.
Traders are also patiently awaiting the release of the Federal Open Market Committee (FOMC) minutes from March 20. The Fed adopted a somewhat more-dovish-than-expected policy outlook when it cut its dot-plot interest rate forecasts no hikes in 2019 from two increases that were previously forecast. Traders will be searching for some insight for that move.
Today’s U.S. data includes Consumer Price Index which is expected to rise 0.2% in March.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
