Canadian Dollar Update, June 3, 2020 – Canadian Dollar rally stalls with oil retreat
USD/CAD Open: 1.3504-08, Overnight Range: 1.3480-1.3572
WTI Oil is at $36.81 and gold is at $1,693.80. US markets are higher today.
For today, USD resistance is at 1.3578. Support is at 1.3410.
• Oil rally derailed by reports of OPEC/Russia talks
• Risk sentiment stays positive with global equity gains
• Little impact expected from today’s Bank of Canada meeting
The Canadian dollar rallied overnight, alongside its antipodean currency cousins after the Caixin China Services PMI report surged to 55 in May, compared to 44.4 in April. The Caixin result was its best level since 2010. AUDUSD soared on the news. Prices climbed to 0.6982 from 0.6880 before a bout of profit-taking occurred. Prices slid below the overnight low in early Toronto trading, coinciding with a rebound in the US dollar against the G-10 majors. NZDUSD suffered a similar fate.
It was another “risk-on” Asia session. Wall Street closed with gains which led to a rise in the major Asia equity indexes fueled by hope for a robust, post-COVID-19 economic rebound. The Chinese Service PMI data added to the positive sentiment.
Rising oil prices provided another layer of support to those aboard the “global economic rebound” bandwagon.
West Texas Intermediate soared 22% since last Wednesday on the back of speculation that OPEC and Russia would agree to extend the 9.7 million barrel per day production cuts beyond the end of June until September 1. However, reports of wrangling between the two oil powers knocked WTI down from its overnight peak of $38.15/b to $35.91/b in early Toronto trading. That move hurt the Canadian dollar in the process.
USDCAD tracked WTI price action and climbed to $1.3571 from 1.3482. Oil prices were not the only reason for the rally. A wave of profit-taking swept across FX markets, and the US dollar clawed back most of its Asia and European losses in early NY trading.
EURUSD dropped from 1.1227 to 1.1183 in Toronto before edging higher. Eurozone employment data provided the single currency with support in Europe, when the unemployment rate rose 7.3%, beating the forecast for an 8.2% rise.
Nevertheless, EURUSD remains underpinned by the EU COVID-19 Relief Fund proposal and by anticipation that the ECB increases monetary stimulus at Thursday’s meeting.
GBPUSD climbed alongside the single currency despite concerns that the EU and UK trade talks have reached an impasse, which raises the risk of a no-deal Brexit. UK Services PMI at 29 was weak, but traders ignored the results.
The Canadian dollar is unlikely to get any direction from today’s Bank of Canada monetary policy meeting. The BoC will leave the overnight rate unchanged at 0.25% and be content to take a “wait and see” approach after the rash of stimulus measures announced recently.
Today’s US data is second tier, and should not have an impact on FX markets.
Today’s Suggested Range USD/CAD: 1.3450– 1.3550