The Canadian dollar is outperforming the other commodity bloc currencies, (AUD and NZD) but still a tad weaker than where it closed on Monday. The currency is in a tug-of-war between Canadian dollar bulls and bears. So far, the bulls have a slight advantage as the Canadian dollar is modestly above its mid-point level for the past eight months.
Canadian dollar bullish sentiment is supported by expectations that the Bank of Canada policy is more neutral than dovish. Investors think the Governing council’s bias is to leave rates unchanged due to the better-than-expected domestic economic growth. Rising oil prices are also supporting bullish Canadian dollar sentiment.
Canadian dollar bearish sentiment is caused by broad U.S. dollar strength and the perception that the U.S. Federal Reserve will not be cutting interest rates as aggressively as previously anticipated. The odds of a 0.25% rate cut on Wednesday have dropped from 92% last week to just 65% this week. That sets the stage for a big U.S. dollar move after the announcement.
The Canadian dollar was largely ignored in Asia. The focus in Australia was on the minutes of the September 3 Reserve Bank of Australia meeting. The minutes warned that additional Australian rate cuts were likely, and that the Aussie rate would remain low for a sustained period. AUD/USD dropped on the news, from $0.6870 to $0.6832. Prices have since drifted higher but are well below the overnight peak.
Canadian dollar traders are keeping a close eye on oil prices. West Texas Intermediate, the North American benchmark price, rose to $62.55 U.S./barrel in Asia. The rally was not sustained, and prices retreated to $61.63/b by the time Toronto opened. Oil prices are supported by gains the loss of Saudi Arabian oil production and the risk of increased Middle East hostilities. However, the oil price rally fell well short of the 2019 price peak, in part because of fears of a rising supply demand imbalance. The Organization of the Petroleum Exporting Countries, International Energy Agency, and, U.S. Energy Information Administration all warned that the ongoing U.S./China trade war is lowering crude demand, due to slowing growth, even as U.S. crude production rises.
In Europe, EUR/USD trading was subdued. German and Eurozone ZEW Survey data showed an improvement in Economic Sentiment Indices; however, they were still negative. Dovish comments from European Central Bank officials and the lingering impact of last week’s new quantitative easing program are weighing on prices. The British pound trade quietly because of a lack of new Brexit developments.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
