Canadian Dollar Update February 21, 2020 – Canadian Dollar may be a US Dollar proxy
USD/CAD Open: 1.3256-1.3257, Overnight Range: 1.3219-1.3268
Oil is at $53.20 and gold is at $1,646.90. US markets are lower today.
The short-term USD/CAD technicals are neutral-bearish. For today, USD resistance is at 1.3282. Support is at 1.3225.
The Canadian dollar is trading like it’s a US dollar proxy, especially when compared to the other commodity bloc currency pairs. Since the beginning of February, AUDUSD has dropped 1.7%, and NZDUSD is down 2.3%. The bulk of the losses are attributed fears that the Coronavirus outbreak, will have a negative impact on Australian and New Zealand economic growth due to slowing trade with China. China is the largest trading partner for both those countries. The Canadian dollar is not in that boat. China may be Canada’s second-largest trading partner, but China trade is far below that with the USA. The Canada/US trade volume is over three times greater than Canada/China trade, and the US economy is still expanding.
Many analysts believe that the US dollar is in demand because the search for yield has led global investors to sell low yielding Japanese and Eurozone investments in favour of higher-yielding US assets. The US Fed funds range is 1.50-1.75%. The European Central Bank deposit rate is -0.5%, while the Bank of Japan rate is -0.10%.
Canadian rates are just as favourable as those of the US. The Bank of Canada overnight rate is 1.75%, which helps explain the Canadian dollar’s resilience in the face of broad US dollar strength against the G-10 majors.
The US dollar is poised to close the week with gains across the board.
Canada Retail Sales is forecast to rise 0.1% m/m compared to November’s 0.9% m/m increase. On the other hand, weak results would spark chatter about the need for the Bank of Canada to cut interest rates.
West Texas Intermediate (WTI oil prices are giving the Canadian dollar a bit of a boost, after rising from $50.90/barrel on Tuesday to $52.89/b today. Prices are supported by hopes Russia supports Saudi Arabia’s call for OPEC to cut crude production by another 600,000/barrels per day.
A nascent EURUSD rally, stemming from better than expected eurozone PMI data, was short-lived.
German Manufacturing and Composite PMI data was better than expected, and EURUSD rose to 1.0819 from 1.0785. The rally derailed by fears that the Coronavirus outbreak was spreading to more counties. EURUSD dropped to 1.0799 in Toronto trading.
There is a risk that the US dollar could see some selling pressure today on the back of profit-taking ahead of the weekend.
Today’s Suggested Range USD/CAD: 1.3210 – 1.3210