The Canadian dollar crept higher yesterday despite the domestic inflation data giving the Bank of Canada another excuse to reduce interest rates. USD/CAD closed at $1.3220 yesterday supported in part by West Texas Intermediate oil prices jumping 8.3% since February 10.
Statistics Canada reported Consumer Price Index rose 2.4% y/y in January, which bettered the 2.3% forecast and the 2.2% y/y result for December. The bulk of the move was due to an increase in gasoline prices. However, core-inflation dipped from 2.1% y/y in December to 2.0% y/y in January.
The Canadian dollar rallied stalled in Asia and prices slipped right into the Toronto open. The U.S. dollar was in demand during the overnight session, and that demand finally impacted the Canadian dollar, even though crude oil prices were still near session highs.
Canadian dollar outperformance was evident in Asia, where the Australian and New Zealand dollars were sold.
AUD/USD dropped from 0.6693 to 0.6622 despite the Australia Employment change data beating forecasts. Australia added 13,500 new jobs compared to expectations for a gain of 10,000. The results were tarnished by the news that the unemployment rate rose to 5.3% from 5.1%. AUD/USD also suffered from fears that the coronavirus was expanding in other Asia centers after South Korea reported 31 new cases today.
USD/JPY gained 2.3% since Tuesday’s low of 109.60, touching 112.10 at the Toronto open. Analysts suggest the rally is due to Japanese investors selling domestic and European assets in favour of U.S. assets due to the U.S. yield advantage. That was evident in EUR/USD which continued to slide, touching $1.0779 overnight.
Yesterday’s release of the Federal Open Market Committee (FOMC) meeting minutes of January 29 underscored the divergent economic growth trajectories between the U.S. and those of Japan and the eurozone. The FOMC minutes suggested that the Committee had a bit of an optimistic outlook for the U.S. economy. They described the "distribution of risks to the outlook for economic activity" as more favourable than at the December meeting.
The coronavirus outbreak was discussed, and officials said it "warranted close watching." The minutes did not offer anything to change the market sentiment that U.S. rates would remain steady for the foreseeable future.
Minneapolis Federal Reserve President Neel Kashkari expressed similar sentiments yesterday. He said he expected U.S. rates to "stay put" for a while.
GBP/USD dropped from $1.3015 yesterday after UK inflation data was released, to $1.2860 in Toronto today.
Traders ignored better than expected U.K. Retail Sales which rose 0.9% in January and was the best result since last March. Instead, GBP/USD continued to be sold due to bearish technicals, broad-based U.S. dollar demand, and negative sentiment around the outlook for U.K./E.U. trade talks.
Canadian dollar price action will continue to track U.S. dollar sentiment and oil price movements.
Today’s domestic and U.S. economic data will not be much of a factor for FX traders.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
