Canadian Dollar Update February 19, 2020 – Canadian Dollar defying gravity
USD/CAD Open: 1.3259-1.3260, Overnight Range: 1.3215-1.3260
Oil is at $53.15 and gold is at $1,610.50. US markets are higher today.
The short-term USD/CAD technicals are neutral-bearish. For today, USD resistance is at 1.3260. Support is at 1.3205.
The Canadian dollar is defying gravity. The domestic currency is clawing out gains even as the other commodity bloc currencies drift down from this week’s peak levels. The recent spike in oil prices is fueling the Canadian dollar gains. The oil price gains followed a shift in risk sentiment and new US sanctions.
The US government black-listed Russia’s state-owned oil company, Rosneft, for helping Venezuela to avoid American sanctions. The black-list comes as the Americans claim to be trying to prevent the existing Venezuela government from “looting” oil assets. Russia was not impressed.
The sanctions were only part of the reason for the oil price rally. Global risk sentiment turned positive following reports from China that the number of new coronavirus cases reported daily, is declining, which suggests that the worst may be over. Also, China is reportedly preparing new economic stimulus measures, including another interest rate cut.
The Canadian dollar joined in the latest risk-seeking rally despite yesterday’s ugly Manufacturing Sales report. The December results were expected to rise 0.5% but instead dropped 0.7%. The details were not encouraging. Shipments have declined for two quarters, and inventory levels are the highest since 2007.
The news raised the risk that the Bank of Canada will cut rates in two weeks.
The Canadian economy is already suffering from the lingering impact of the US/China trade war, which is exacerbated by the coronavirus outbreak. The recent rise in inflation is reportedly due to transitory factors, and the ongoing railway blockades will be a drag on domestic growth.
Elsewhere, EURUSD continues to trade softer. Prices are weighed down by weak Eurozone economic growth and the dovish outlook of the European Central Bank. Weaker than expected Eurozone Construction Output data and yesterday’s bearish German ZEW survey continue to undermine the single currency.
GBPUSD couldn’t get any traction in Asia, and a post-CPI data rally ended with a thud. UK January CPI rose 1.8% y/y, a tick better than forecast. However, ongoing concerns around the upcoming UK/EU trade negotiations encouraged sellers.
FX markets are cautious ahead of this afternoon’s release of the FOMC minutes from January 29th.
Canada CPI data is due today. Higher than expected results will be discounted because they are due to what the BoC describes as “transitory” influences.
Today’s Suggested Range USD/CAD: 1.3210 – 1.3310