Canadian Dollar Slides As Oil Prices Rise

The Canadian dollar has been sliding since the middle of September after Bank of Canada Governor Stephen Poloz downplayed risks for a third rate increase in 2017.  The Canadian dollar was also undermined by a repricing of a US Federal Reserve rate hike in December.  The odds for that move rose from 40% on September 18 to 91.7% by October 10.

Canadian dollar selling pressure occurred on renewed US tax cut chatter.  President Trump’s fiscal stimulus led to renewed buying of US dollars and fueled stock market gains. The US dollar rallied against the major currencies, and the Canadian dollar was collateral damage.

There’s more.  Canadian dollar sellers emerged when the North America Free Trade renegotiation turned nasty. The United States Commerce department unilaterally levied a 219% countervailing duty on all Bombardier CSeries aircraft.

This week, the Canadian dollar has drifted sideways but close to the top of its recent range.  FX market trading activity has been subdued due to a dearth of major economic data releases and holidays in the US Canada and Japan.

The FX markets are suffering from a lack of motivation. There wasn’t much in the way of actionable, top-tier data leaving traders content to bide their time until the release of the FOMC minutes from the September 20 meeting.

The US dollar caught a bid after the FOMC statement and has managed to hang on to most of those gains, on anticipation of a rate hike in September. A December rate hike is almost fully priced in (91.7% according to Fedwatch)

Therefore the risk is US dollar weakness if the market determines the minutes are dovish.

Overnight, AUDUSD rallied from 0.7777 to 0.7807 on better than expected Consumer Confidence data.  The move was reversed quickly.  NZDUSD rallied with AUDUSD and suffered the same fate.

USDJPY bounced within a 112.20-57 range with firm Machinery Orders data not being a factor.

EURUSD chopped around in a 1.1796-1.1843 range with support derived from relief that the Catalan President opted for negotiation rather than a declaration of Independence. ECB Board member Frank Smets advocated an extended period of tapering. He has said it all before.

Sterling is off its peak level of 1.3220 on profit-taking sparked by concerns about Brexit’s impact on the domestic economy.

WTI oil prices extended gains, rising from $50.89 to $51.39/barrel.  Supply disruptions and talk of a successful rebalancing of supply/demand metrics are behind the move.

 

FX Ranges for major currency pairs

10-Oct-17 11-Oct-17
close open High Low
EURUSD 1.1815 1.1807 1.1843 1.1796
USDJPY 112.41 112.22 112.57 112.20
GBPUSD 1.3206 1.3192 1.3220 1.3177
USDCHF 0.9748 0.9748 0.9765 0.9738
AUDUSD 0.7782 0.7782 0.7807 0.7777
NZDUSD 0.7074 0.7067 0.7097 0.7064
USDCAD 1.2512 1.2523 1.2528 1.2498
GOLD 1288.23 1289.50 1291.50 1287.01
WTI 50.93 51.35 51.39 50.89

 

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