USD/CAD - Broad U.S. Dollar Demand Weighs on Canadian Dollar

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The Canadian dollar is under pressure. Broad U.S. dollar demand stemming from a mild bout of risk aversion trading is weighing on the loonie which appears to be ignoring the latest surge in oil prices.

West Texas Intermediate (WTI) the North American benchmark price for crude soared to $66.16 U.S./barrel overnight, the highest price since November and a 4.1% gain from Thursday’s $63.50/b low. The U.S. government announced that it would cancel all waivers for oil imports from Iran which directly affects, China, Japan, North Korea, India, and Turkey. China has launched a formal complaint and urged the US not to take "wrong decisions that harm China’s interests." The U.S. government expects Saudi Arabia and the Organization of the Petroleum Exporting Countries to make up for the lost Iranian production.

The Canadian dollar is not getting much benefit from higher oil prices which is due, in part to domestic issues. Alberta is suffering from a lack of pipeline capacity which limits its ability to benefit from the higher prices.

Today is the first full day of trading this week. All markets were open following the Easter break, but the price action was subdued, in part due to a lack of actionable, top-tier data. AUD/USD drifted lower on mild risk aversion and fears of a soft inflation report, due tomorrow. Traders fear that weaker than expected Consumer Price Index will raise the risk that the Reserve Bank of Australia (RBA) cuts interest rates.

USD/JPY saw selling pressure in Asia, but the move was not sustained, and prices rebounded in Europe. EUR/USD traded sideways in a very narrow band.

GBP/USD was the biggest mover. Prices climbed from yesterday’s low of $1.2976 to $1.3018 in early New York trading this morning. Buyers emerged after the weekend passed without any negative Brexit news. The diminished risk of a "no-deal" Brexit is supporting the currency pair.

Canadian dollar traders appear to believe that the risk of a dovish Bank of Canada (BoC) policy meeting on Wednesday, trumps any benefit from the surge in crude prices. The BoC is almost universally expected to leave domestic interest rates unchanged at 1.75% when it meets on Wednesday. Traders expect growth downgrades in the quarterly Monetary Policy Report which is also undermining the currency. Nevertheless, the currency pair has been locked in a USD/CAD range of $1.3260-$1.3465 since the beginning of March, and as long as the BoC statement and MPR are close to expectations, that range should hold.

There are only second-tier U.S. economic reports available today, and they shouldn’t have much impact on FX markets. The same holds true with Canada’s February Wholesale Sales data.

Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
Learn how KnightsbridgeFX can help you save up to 2% when buying or selling US dollars compared to your Canadian bank’s rates – click here to compare bank rates