The Canadian dollar moved upward Wednesday. The move was sharp, steep and brief. Canadian Retail Sales for March rose 1.1% (forecast 1.1%) while Retail Sales, ex-autos rose 1.7%. (forecast 0.9%) The results were better than expected, and the Canadian dollar soared.
However, prices quickly hit a ceiling when traders realized that most of the gains were due to higher gasoline prices.
The Canadian dollar losses accelerated when the Energy Information Administration (EIA) reported U.S. crude inventories rose 4.74 million barrels, which was well above the 0.6-million-barrel increase expected. West Texas Intermediate, the North American crude benchmark price, plunged, falling from $62.73 U.S./barrel to $61.05/b.. Prices continued to fall overnight, and WTI opened in Toronto at $60.40 U.S./b.
Additional selling pressure stemmed from concerns that rising U.S. crude supply and increasing risks of a global economic slowdown because of the China/U.S. trade war, would more than offset a possible extension to production cuts by the Organization of the Petroleum Exporting Countries.
Canadian dollar selling pressures intensified in overnight markets thanks to an increase in risk aversion sentiment. FX traders sought safe-havens because of a variety of risks. The U.S./China trade war appears to be settling in for the long run, and a new round of talks isn’t scheduled. A spokesman for China’s Ministry of Commerce said that "If the U.S. would like to keep on negotiating it should, with sincerity, adjust its wrong actions" according to CNN.
The trade risk is just one issue unsettling markets. U.K. political turmoil has fueled GBP/USD selling in recent days and led to a spike in risk aversion sentiment. Senior government officials are resigning their posts in protests of Prime Minister Theresa May’s latest Brexit plan. The animosity towards her strategy has risen so high that she is on the cusp of being forced to resign. GBP/USD has fallen from$1.2825 on Tuesday to a low of $1.2607 this morning.
EUR/USD has been under pressure as well. The fallout from Brexit is one reason but concerns about the European Union elections today are another. In addition, today’s euro-zone and German economic data was a tad on the soft side. EUR/USD slipped from an overnight peak of $1.1156 to $1.1130 in early Toronto trading.
The Federal Open Market Committee minutes from the May 1 meeting, which were released yesterday afternoon were a tad less dovish than expected. The minutes confirmed recent comments by Fed officials suggesting that interest rates would remain unchanged, but they didn’t offer any evidence that a rate cut was on the horizon. Instead, the minutes showed a Committee content with their outlook and willing to be patient.
Jobless Claims and New Homes data are on the U.S. economic calendar today. FX traders will ignore the Canadian Wholesale Sales report.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
