The Canadian dollar has had a busy 24 hours. USD/CAD dropped from $1.4065 yesterday, in Europe and hit $1.3910 in Toronto, just after breakfast. Profit-taking and a drop in West Texas Intermediate oil prices drove USD/CAD to $1.4002, where it closed. Overnight, USD/CAD sellers were out in droves and prices dropped to $1.3932, just as Europe opened. They churned in a $1.3932-1.3955 range until opening in Toronto at $1.3940.
The Canadian dollar rally is on the back of broad U.S. dollar weakness, with oil prices action helping to fine-tune price movements. The U.S. dollar is retreating on the back of improving risk sentiment as several countries begin to ease coronavirus lock-down restrictions while at the same time, equity portfolio managers are selling U.S. dollars to re-balance their portfolios on the approach to month-end. Oil prices have rebounded alongside the dip in the greenback, and hope that the Organization of the Petroleum Exporting Countries/Russia production cuts that start on Friday will alleviate the global oversupply situation.
However, it is unlikely that the Canadian dollar will extend its gains much further. Portfolio managers appear to be pre-dealing to get a jump on the 11:00 am fixing rate when FX positions are marked-to-market. A large swath of Canadian dollar support will disappear after the month-end re-balancing process.
Oil prices need to double to give the Canadian dollar lasting support, as at current levels WTI is too low to enable Canadian producers to pump crude profitably. The world has to churn through a tremendous glut of oil before the supply/demand equation returns to normal. That process will take time due to the G-7 governments adopting a phased-in approach to reopening their economies.
The Canadian dollar has benefited from optimism around economies reopening, however, many governments are reluctant to give a firm timeline as the coronavirus is still very active.
EUR/USD has given back almost half of its overnight gains in early Toronto trading. The single currency climbed from $1.0820 to $1.0873 just before Toronto opened and then dropped to $1.0842. Weaker than expected Eurozone Economic sentiment weighed on prices.
Traders are also awaiting the release of U.S. Q1 Gross Domestic Product, which is expected to decline by 4.0%. Sharply weaker than expected results may spark a shift into risk aversion trades.
The Federal Open Market committee meeting is today, but after three meetings in March (two unscheduled), today’s meeting is not expected to provide any drama.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
