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Canadian Dollar Update, May 1, 2020 – Canadian Dollar rally ends

USD/CAD Open: 1.4026-30 Overnight Range: 1.3928-1.4109

WTI Oil is at $19.39 and gold is at $1,703.00. US markets are lower today.

For today, USD resistance is at 1.4148. Support is at 1.4052.

• Risk sentiment turns negative
• Oil price rally stalls
• Canadian dollar technicals turn bearish suggesting further weakness ahead

The Canadian dollar rally ended abruptly yesterday. The currency had climbed steadily in the previous 48 hours, supported by equity portfolio managers rebalancing their portfolios ahead of the April 30, “fix”, which is when their positions are benchmarked against the current FX levels.

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The steep rise in the Dow Jones Industrial Average, S&P 500 index and the NASDAQ which finished April with gains of 16.2%, 17.9%, and 20.8%, respectively fueled demand for Canadian dollars as managers realigned their portfolios to their mandates. Those flows evaporated in the morning, and the Canadian dollar sank.

The Canadian dollar was also under pressure after risk sentiment turned negative because of reports that President Trump planned to seek retribution from China because of the way officials in China managed the COVID-19 outbreak. The US has dropped hints that they may use tariffs to extract concessions from Beijing.

Thursday’s weekly US Jobless Claims report was another negative for risk sentiment. The increase of 3.8 million claims brought the six-week total of unemployment to around 30.5 million. The negative sentiment may be reinforced today when the ISM Manufacturing PMI data is released. April PMI is expected to drop to 36.9 from 49.1, underscoring the impact of COVID-19 on the economy.

May Day holidays drained liquidity in Asia and Europe. In Asia, China, Hong Kong, and Singapore were closed. Most of Europe was closed as well. The UK was the only major center open there.

GBPUSD traded with a negative bias, falling from 1.2599 to 1.2528. Royal Bank of Scotland said it was taking an £800 million write-down due to COVID-19 while Ryanair announced 3,500 layoffs. That news depressed UK stock prices and GBPUSD went along for the ride.

EURUSD got an added boost from renewed safe-haven demand and rose to 1.0989 from 1.0836. Thursday, the ECB just slightly tweaked the terms of the refinancing operations and left interest rates unchanged. Traders were disappointed at the mild response.

West Texas Intermediate oil prices are on the defense, but consolidating yesterday’s gains. WTI traded in an $18.10-$20.42 range overnight. News that OPEC production exceeded 30.0 million barrels in April, even as storage space was becoming more limited, capped gains, but hopes that global economies will soon reopen is underpinning prices.

The Canadian dollar will remain vulnerable to further weakness but is likely to consolidate yesterday’s losses inside the overnight range, today.

Today’s Suggested Range USD/CAD: 1.4000– 1.4100

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By KBFX | May 1, 2020 | Daily Update | 0 comments