Canadian Dollar Update February 20, 2020 – Canadian Dollar underpinned by crude prices
USD/CAD Open: 1.3218-1.3219, Overnight Range: 1.3211-1.3265
Oil is at $54.30 and gold is at $1,620.10. US markets are mixed today.
The short-term USD/CAD technicals are neutral-bearish. For today, USD resistance is at 1.3268. Support is at 1.3197.
The Canadian dollar crept higher yesterday despite the domestic inflation data giving the Bank of Canada another excuse to reduce interest rates. USDCAD closed at 1.3220 yesterday supported in part by West Texas Intermediate oil prices jumping 8.3% since February 10.
Statistics Canada reported CPI rose 2.4% y/y in January, which bettered the 2.3% forecast and the 2.2% y/y result for December. The bulk of the move was due to an increase in gasoline prices. However, core-inflation dipped from 2.1% y/y in December to 2.0% y/y in January.
The US dollar was in demand during the overnight session, and that demand finally impacted the Canadian dollar, even though crude oil prices were still near session highs.
Canadian dollar outperformance was evident in Asia, where the Australian and New Zealand dollars were sold.
USDJPY gained 2.3% since Tuesday’s low of 109.60, touching 112.10 at the Toronto open. Analysts suggest the rally is due to Japanese investors selling domestic and European assets in favour of US assets due to the US yield advantage. That was evident in EURUSD which continued to slide, touching 1.0779 overnight.
Yesterday’s release of the Federal Open Market Committee (FOMC) meeting minutes of January 29th underscored the divergent economic growth trajectories between the US and those of Japan and the Eurozone. The FOMC minutes suggested that the Committee had a bit of an optimistic outlook for the US economy. They described the “distribution of risks to the outlook for economic activity” as more favourable than at the December meeting. The coronavirus outbreak was discussed, and officials said it “warranted close watching.” The minutes did not offer anything to change the market sentiment that US rates would remain steady for the foreseeable future.
Minneapolis Federal Reserve President Neel Kashkari expressed similar sentiments yesterday. He said he expected US rates to “stay put” for a while.
GBPUSD dropped from 1.3015 yesterday after UK inflation data was released, to 1.2860 in Toronto today.
Traders ignored better than expected UK Retail Sales which rose 0.9% in January and was the best result since last March. Instead, GBPUSD continued to be sold due to bearish technicals, broad-based US dollar demand, and negative sentiment around the outlook for UK/EU trade talks.
Canadian dollar price action will continue to track US dollar sentiment and oil price movements.
Today’s domestic and US economic data will not be much of a factor for FX traders.
Today’s Suggested Range USD/CAD: 1.3170 – 1.3270