The Canadian dollar is trading slightly weaker than yesterday’s Toronto closing level. However, it remains locked into the narrow USD/CAD trading band of $1.3030-80, that has contained price action since January 13. That may change tomorrow after the Bank of Canada interest rate decision and the release of the quarterly Monetary Policy Report (MPR).
The Canadian dollar was caught up in a minor wave of risk aversion sentiment that occurred in Asia. News that the Wuhan coronavirus had spread to South Korea, Japan, and Thailand knocked AUD/USD, and NZD/USD lower, and the loonie went along for the ride. Traders are concerned that a more widespread outbreak will occur due to the increased travel around Chinese New Year. Those fears appeared to dissipate in Europe and the antipodean currencies recovered most of their losses.
Not so, for the Canadian dollar. It opened in Toronto near its overnight peak, weighed down by another drop in oil prices. West Texas Intermediate, the North American benchmark crude price, fell to $57.68 U.S./barrel from $58/78/b. Yesterday’s concerns about supply shortages from the shutdown of Libya production was replaced by fears that crude oil supplies outstrip demand.
Overnight, the Bank of Japan’s left interest rates unchanged, as universally expected. They also modestly tweaked 2020 Consumer Price Index forecasts lower by 0.1% while increasing GDP growth by 0.2% The drop in USD/JPY from 110.21 to 109.90 was more a factor of safe-haven demand because of the Chinese virus spreading than it was to the BoJ news.
Prices bounced from the low and are trading in Toronto at 110.03.
EUR/USD ignored a threat by U.S. Treasury Secretary Steven Mnuchin and squeezed higher. Mnuchin warned that European countries would have tariffs placed on them if they continue to tax digital companies. France already crumbled and said they had "suspended" their planned tax. EUR/USD got a boost from better than expected eurozone and German ZEW Surveys which were better than expected. The ZEW institute attributed the gains to the settlement of the U.S. and China trade dispute.
GBP/USD rallied on the back of a strong U.K. employment data. The U.K. showed the best job growth in a year, which occurred even as the U.K. economy was slowing. The employment results reduced the odds that the Bank of England would cut interest rates on January 30, which powered GBP/USD to $1.3063 from $1.2997.
President Trump’s speech from the World Economic Forum in Davos didn’t have an impact on FX markets. His complaint that the Fed hiked rates unnecessarily and then cut them too slowly was ignored as it was old news.
The U.S. and Canadian economic calendars are light, suggesting another day of range trading.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
