The Canadian dollar rallied in Asia, retreated in Europe, and opened close to unchanged in New York. Oil prices, antipodean currency movements, and inflation concerns, combined to roil the domestic currency.
West Texas Intermediate (WTI) oil surged from $75.00 yesterday to $76.95/barrel in Europe before drifting down to $76.25 in New York trading. The price volatility stems from the failure of the Organization of the Petroleum Exporting Countries (OPEC) to agree on the duration of production cut quotas. The cartel planned to raise production by two million barrels per day, beginning August 1, but the deal fell apart when the United Arab Emirates (UAE) balked at a proposed extension of existing cuts beyond the March 22 end date. As a result, the meeting ended, and the proposed August production increase is off the table for now.
FX traders see inflationary implications from rising oil prices and bought U.S. dollars. Gold prices climbed to $1809.09 from $1791.16 due to negative risk sentiment. Bond traders didn’t seem to care as U.S. 10 year Treasury yields languished at recent lows.
Yesterday, the Bank of Canada Business Outlook Survey (BOS) was relatively upbeat with expectations for future sales, investment intentions, and employment intentions suggest robust domestic economic growth. More than half of survey respondents expect price increases to be temporary, at least for the next 12 months.
AUD/USD and NZD/USD were the best performing currencies overnight, with the latter rising 0.89% compared to Monday’s New York open.
The New Zealand Institute of Economic Research (NZIER) Business Confidence index jumped to 7% q/q compared to -13% q/q previously. The Institute said, "These results suggest the recovery in the New Zealand economy will remain robust over the coming year."
The results led ASB and Bank of New Zealand to forecast a rate hike in November 2021. NZD/USD climbed to $0.7104 from $0.7023.
AUD/USD rose 0.60% following the Reserve Bank of Australia’s (RBA) widely-expected announcement that Quantitative Easing purchases would be tapered from $5.0 billion per week to $4.0 billion. The RBA left the OCR rate unchanged at 0.10%. The RBA statement repeated that a rate hike is unlikely before 2024. However, Governor Philip Lowe said, "I want to re-emphasize the point that the condition for an increase in the cash rate depends upon the data, not the date; it is based on inflation outcomes, not the calendar."
Traders are looking ahead to the Institute for Supply Management Services Purchasing Management Index data today and the Federal Open Market Committee minutes tomorrow.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
