Canadian Dollar Update – Canadian dollar bounces back
USD/CAD Open: 1.3641-45, Overnight Range: 1.3629-1.3667, Previous Close: 1.3658
WTI Oil open at $81.95 and gold open at $1,987.26. US markets are higher today.
For today, USD resistance is at 1.3709. Support is at 1.3691.
- Dovish Fed and soft data weigh on US dollar.
- Canadian dollar soars on belief US tightening cycle is over.
- US dollar opens sharply lower from Friday-GBP is the star performer.
The Canadian dollar turned its frown upside down. USDCAD plummeted from Friday’s peak of 1.3761 to a low of 1.3629 overnight thanks to widespread US dollar selling pressure.
The Canadian dollar started moving higher in the wake of last Wednesday’s FOMC meeting after Chair Jerome Powell hinted that rates have peaked. He commented that rising Treasury yields were tightening financial conditions which may lower the need for rate increases. Weaker than expected nonfarm payrolls (actual 150,000 vs forecast 180,000) and a 36,900 downward revision of the September results were viewed as evidence the US economy was slowing.
Traders bailed out of long US dollar positions and the greenback plunged, triggering stop-loss events in many of the major G-10 currencies.
The Canadian dollar was also sold aggressively, despite the Canadian October Labour Force Survey results being weaker than forecast. Canada only added 17,500 jobs compared to the forecast for an increase of 22,500. That news came on the heels of September GDP data showing Canada’s economy stagnated in September with zero growth expected for October, as well.
The poor Canadian data greatly reduces the risk of another Bank of Canada rate hike. The Canada and US 10-year yield differential is -191 points, close to its worst level in a year and hardly a reason to buy Canadian dollars.
West Texas Intermediate (WTI) prices have dropped substantially in just two weeks, falling from $89.87 on October 20 to $80.12 on Friday, for a loss of 10.8%. That is not a trend that usually supports Canadian dollar gains.
EURUSD extended Friday’s gains in a 1.0722-1.0756 range overnight. Prices saw a bit of support after German factory orders and Eurozone Services PMI data.
GBPUSD rallied hard and continued to gain overnight, trading in a 1.2365-1.2424 range. UK Construction PMI (actual 55.6 in October vs. September 45.0) data was not a factor.
USDJPY drifted in a 147.32-147.74 band, pressured by lower US Treasury yields. Bank of Japan Governor Kazuo Ueda said he didn’t think policymakers would have enough data to tighten policy this year.
AUDUSD traded in a 0.6503-0.6524 range. The RBA meeting is tomorrow and it’s evenly split between a 25 bps rate hike or leaving rates unchanged.
Canada Ivey PMI data is due.