USD/CAD - A Resilient Loonie

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The Canadian dollar has thwarted attempts to knock the floor out from under it, even as oil prices continue to weaken and that is unlikely to change anytime soon.

The U.S. dollar came under renewed selling pressure yesterday. Institute for Supply Management Non-manufacturing Purchasing Manufacturing Index data was weaker than forecast, and factory orders soft. Thursday’s data came on the heels of weak ISM Manufacturing data on Tuesday, which suggests that U.S. economic growth is contracting.

The poor data drove U.S. Treasury yields lower as traders raised expectations that the Federal Reserve will cut interest rates at the end of October. Last Friday, the odds for such a move were below 50%. Yesterday, they were 87%, as per the CME FedWatch tool, which fueled U.S. dollar selling against the G-10 major currencies. USD/JPY suffered greatly, falling from 108.40 to 106.74 since Tuesday.

The British pound is wrapped in its Brexit world. U.K. Prime Minister Boris Johnson’s latest plan sparked rumours and counter-rumours. Initial reports that European Union officials were modestly positive on the new proposals fueled a GBP/USD rally which drove prices from $1.2270 to $1.2410. That optimism was misguided, and prices retreated to $1.2330 before consolidating in a $1.2311-$1.2355 range overnight.

EUR/USD is struggling to gain upside traction amidst broad U.S. dollar weakness vs the major G-10 currencies. Weak eurozone data, Germany recession concerns and a dovish European Central Bank are limiting upside moves. Short-term EUR/USD technicals are bearish while prices are below $1.1110.

The U.S. dollar weakness is taking a toll on oil prices. West Texas Intermediate (WTI) fell 9.0% this week on the back of slowing global growth expectations, rising U.S. inventories, and rising U.S. crude production. Those losses weighed on the Canadian dollar but not enough to drive it through major support.

AUD/USD rallied overnight, supported by better than expected Retail Sales data. Across the Tasmanian Sea, NZD/USD recorded gains as well, due to the U.S. dollar weakness.

Nevertheless, FX markets were reasonably quiet overnight with traders awaiting today’s U.S. employment report. Non-farm payrolls (NFP) are expected to rise 145,000, a modest improvement over August’s 130,000 increase. If the results are substantially weaker than expected, the U.S. dollar will get knocked for a loop as it would raise rate cut expectations to close to 100%. The Canadian dollar would benefit as well, although the gains may be limited.

The week ahead brings U.S. inflation and Canadian employment reports. However, the focus will be on the start of U.S./China trade negotiations, scheduled for October 10/11.

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