Canadian Dollar Update February 3, 2020 – Canadian Dollar on defensive from oil price plunge
USD/CAD Open: 1.3236-1.3237, Overnight Range: 1.3231-1.3268
Oil is at $51.02 and gold is at $1,580.90. 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 1.3217.
The Canadian dollar is on the defensive after a steep drop in oil prices to start the week. West Texas Intermediate (WTI), the North American benchmark price for crude gapped lower at the Asia open, and it knocked the Canadian dollar down, in the process.
Chinese markets reopened after their Lunar New Year holidays, and they were ugly as local traders had their first opportunity to react to the coronavirus outbreak. The Shanghai Shenzhen CSI 300 index plummeted, losing 7.9% and that was despite government intervention. The Peoples Bank of China (PBOC) reportedly ordered local brokerage firms not to allow “short-selling,” even as many commodity prices reached “limit-down” levels. The PBoC injected 1.2 trillion yuan into the system and trimmed 7 and 14-day repo rates by 10 basis points. USDCNY soared rising from 6.9364 on January 24 to 7.0260.
China’s state oil company, Sinopec, said refinery production had dropped, and there is rumours that China oil demand is down 20%. That news was offset by a report Saudi Arabia would temporarily reduce its crude production by 1.0 million barrels/day.
The Chinese market action spooked the commodity bloc currencies, although the reactions were relatively tame. The Australian, New Zealand, and Canadian dollars had already reacted to the coronavirus, while Chinese markets were playing “catch-up.” AUDUSD and NZDUSD opened in Toronto, mostly unchanged from Friday’s closing levels.
That wasn’t the case for the British pound. GBPUSD screamed lower, falling from 1.3205 at the Asia open to 1.3048 in Toronto. Traders were unnerved ahead of, and after UK Prime Minister Boris Johnson and European Union Head of Task Force for UK relations, set out their trade negotiating positions.
EURUSD was weighed down by broad US dollar demand and the rise in USDCNY. Markit Manufacturing PMI reports from Spain, Italy, France, and Germany, as well as the Eurozone, were a tad firmer than the previous month but still below 50, which indicates economic growth is contracting. EURUSD dropped to 1.1069 from 1.1094.
The Canadian dollar continues to be weighed down by the shift into safe-haven trades due to the Wuhan coronavirus, and it could suffer further losses if today’s US ISM Manufacturing survey is higher than expected. There are not any notable Canadian economic reports available today.
Today’s Suggested Range USD/CAD: 1.3190 – 1.3290