Canadian Dollar Update August 7, 2019 – Canadian Dollar outlook turns bearish
USD/CAD Open: 1.3277-1.3278 Overnight Range: 1.3264-1.3344
Oil is at $51.67 and gold is at $1,511. US markets are lower today.
The short-term USD/CAD technicals are neutral-bearish. For today, USD resistance is at 1.3389. Support is at 1.3269.
The Canadian dollar outlook turned bearish overnight. USDCAD broke above key resistance in the 1.3250-70 area, which suggests there will be further weakness ahead, according to short term technical analysis.
The Canadian dollar is being undermined by external factors, including falling oil prices, the US/China trade war and easy monetary policies. The major G-10 central banks are slashing interest rates to combat slowing economic growth. The Reserve Bank of New Zealand (RBNZ) made an aggressive move overnight, slashing the Overnight Cash Rate (OCR) by 50 basis points from 1.50% to 1.00%. Markets were surprised as they only expected 0.25 b cut. The RBNZ noted that “heightened global uncertainty was reducing investment and suppressing trading-partner growth. This highlighted the risk of a larger or more prolonged slowdown in global economic growth”. NZDUSD plunged, falling from 0.6556 to 0.6380 before trading back to 0.6430 in Toronto.
Interest rate cuts by the RBNZ, Fed, RBA, and heightened speculation of renewed quantitative easing by the European Central Bank, is taking a toll on the Canadian dollar. Analysts are wondering how long the Bank of Canada can stay on the sidelines before it is forced to follow suit. Canadian economic growth is recovering after the slow start at the beginning of the year, and the BoC would be loathe to have the recovery interrupted by a resurgent Canadian dollar.
FX markets are nervous. President Trump and the US Treasury’s declaration that China is a “currency manipulator” was another escalation in what is becoming a prolonged US/China trade war. China denied the accusation and retaliated by suspending imports of American agricultural products. The White House tried to dial back the trade drama. Yesterday, Trump’s economic advisor Larry Kudlow said that the Americans still expected to hold another round of trade talks in September. Risk aversion sentiment eased slightly on the news which helped Wall Street stocks to rally but not enough to fully recoup Monday’s losses.
Oil prices are trading with a negative bias. The escalation of the US/China trade war and rising fears of a deeper than expected global economic growth slowdown, more than offset OPEC and Russia’s production caps. West Texas Intermediate (WTI) prices broke support in the $53.30-50/barrel area which if sustained, set the stage for a steeper drop to the $50.00/b area.
The drop in oil prices helped drive the Canadian dollar above USDCAD resistance at 1.3250, which suggests further gains to 1.3400. Traders are looking ahead to the Ivey PMI data today and Friday’s Canadian employment report. There are not any US economic releases of note available today.
Today’s Suggested Range USD/CAD: 1.3230 – 1.3330
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