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Canadian Dollar Update, April 29, 2020 – Canadian Dollar stays firm

USD/CAD Open: 1.3939-42, Overnight Range: 1.3917-1.4003

WTI Oil is at $15.48 and gold is at $1,713.50. US markets are higher today.

For today, USD resistance is at 1.3988. Support is at 1.3880.

• FX traders cautious ahead of US GDP data and FOMC meeting
• Eurozone data highlights impact of COVID-19 pandemic
• US Dollar retreats in overnight FX action

The Canadian dollar has had a busy twenty-four hours. USDCAD 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 USDCAD to 1.4002, where it closed. Overnight, USDCAD sellers were out in droves and prices dropped to 1.3932, just as Europe opened.

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The Canadian dollar rally is on the back of broad US dollar weakness, with oil price action helping to fine-tune price movements. The US 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 US dollars to rebalance their portfolios on the approach to month-end. Oil prices have rebounded alongside the dip in the greenback, and hope that OPEC/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 part of Canadian dollar support will disappear after the month-end rebalancing 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.

EURUSD 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 US Q1 GDP, 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.

Today’s Suggested Range USD/CAD: 1.3890– 1.3990

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By KBFX | April 29, 2020 | Daily Update | 0 comments