Canadian Dollar Update December 27, 2018
The Canadian dollar continues to suffer from falling oil prices, rising risk aversion, and US stock market gyrations. That theme will continue for the next few days.
It has been a wild week for Wall Street. It closed on Christmas Eve with ugly losses and then closed on December 26 with a record gain. Extremely thin markets exacerbated the moves on both days. US equity futures are pointing to a lower open this morning.
President Trump managed to shut down the US government over funding for his Mexico border wall. The shut-down is mostly political theater and doesn’t impact as many Federal employees as in past closures due to other funding bills in place. Still, the news was enough to spook markets which were already on edge after the resignations of senior White House officials.
The Canadian doll never recovered from last Friday’s thrashing. It consolidated losses on Monday, sank deeper on Wednesday and bounced between 1.3580 and 1.3630 on Thursday in Asia and Europe.
President Trump is responsible for a lot of market angst. The President’s constant disparagement of Fed Chair Jerome Powell has raised fears that he might try to fire Mr Powell. Senior officials have said Mr Powell’s job is safe.
Oil prices have been volatile. They touched $42.76/b in New York morning and closed at $46.94/barrel, a gain of nearly 9.0%. The moves were exaggerated by a lack of players and driven by concerns of oversupply. Russia, Saudi Arabia, and the US have been pumping crude at record volumes in December.
The Canadian dollar mostly ignored the WTI price moves and traded with a negative bias.
Traders are also eyeing US Treasury yields which continue to slide. The 10-year US Treasury yield touched 2.724% yesterday but managed to rise to 2.758% ahead of the New York open. The falling yields boosted the Japanese yen and undermined the Canadian dollar due to cross activity.
Political uncertainty and Wall Street price action will dictate price action today. Traders ignored the slightly better than expected US weekly jobless claims report.
Reuters reported that China Industrial Profits fell for the first time in three years, blaming a slackening of domestic demand. That news knocked AUDUSD lower and kept the Canadian dollar on the defensive.
Traders are looking ahead to Friday’s German CPI data, US Housing starts and Monday’s month end, yearend portfolio rebalancing flows. Today is a typical trading day in that most of the major centers are open for business, albeit with skeleton staffs because a large number of employees are on vacation this week.