Canadian Dollar Update August 1, 2019 – Canadian Dollar flirting with disaster
USD/CAD Open: 1.3238-1.3239 Overnight Range: 1.3179-1.3243
Oil is at $57.16 and gold is at $1,413. US markets are higher today.
The short-term USD/CAD technicals are neutral-bearish. For today, USD resistance is at 1.3255. Support is at 1.3204.
The Canadian dollar is under pressure through no fault of its own. The blame lies solely at the feet of Fed Chair Jerome Powell and the Federal Open Market Committee (FOMC). It didn’t start that way. Yesterday Statistics Canada reported May GDP rose 0.2%, beating the forecast for a 0.1% gain. They said “The increase was led by a rebound in manufacturing with 13 out of 20 industrial sectors expanding. On a three-month rolling average basis, real gross domestic product increased 0.7%.”
The Canadian dollar rallied on the news. USDCAD dropped from 1.3155 to 1.3120 before the move stalled. Prices dropped again after the Energy Information Administration (EIA) reported US crude inventories fell 8.49 million barrels. The spike in West Texas Intermediate (WTI) oil prices sent USDCAD down to 1.3105. Then all the good Canadian dollar news was forgotten.
Traders shifted their focus to the FOMC statement. No one was surprised when US rates were reduced by 0.25%. However, they were a tad surprised by Fed Chair Powell’s press conference remarks. Mr. Powell described the rate cut as a “mid-cycle adjustment.” Then he confused matters by saying the rate cut wasn’t the first of many but adding it doesn’t just mean one more either. Traders concluded that the Fed wasn’t as dovish as expected, which was supported by two Committee members, Esther George and Eric Rosengren voting against the move.
The Canadian dollar got hammered. USDCAD gained 0.52% between Wednesday and today’s opening levels.
The US dollar rallied and continued to do so overnight. The Euro lost the most against the US dollar between yesterday and today’s Toronto opening levels, falling 0.96%. Divergent Fed and European Central Bank (ECB) policies fueled the losses. The ECB has signaled its intentions to resume monetary policy stimulus at the September meeting while the Fed appears to be less dovish than expected. Today’s Eurozone Manufacturing PMI data for July was a tick better than forecast at 46.5. However, it is still below the 50 level, which is the dividing line measure between economic expansion and contraction.
The British pound dropped to a twenty-eight month low. Broad US dollar demand following the FOMC announcement and the elevated risk for a “no-deal” Brexit fueled the sell-off. Prices bounced from 1.2083 just before the Toronto open to 1.2125 in early trading today. The Bank of England left rates unchanged and downgraded economic growth forecasts.
USDJPY rallied after the FOMC and then gave back all the gains by the start of trading in Toronto. Profit-taking and a drop in US Treasury yields triggered the move.
AUDUSD and NZDUSD squeezed out small gains overnight supported by better than expected domestic and China PMI data.
Today’s US data includes ISM Manufacturing PMI and weekly jobless claims.
Today’s Suggested Range USD/CAD: 1.3190 – 1.3290
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