Canadian Dollar Update, May 28, 2020 – Canadian Dollar climbing ahead of month end
USD/CAD Open: 1.3768-72, Overnight Range: 1.3734-1.3789
WTI Oil is at $32.73 and gold is at $1,735.70. US markets are higher today.
For today, USD resistance is at 1.3820. Support is at 1.3702.
• Month-end rebalancing flows lifting Canadian dollar
• Traders ignore BC court ruling against Huawei CFO
• Negative risk sentiment simmers with US/China tensions
The Canadian dollar is consolidating yesterday’s gains while dismissing a drop in oil prices. USDCAD dropped from 1.4005 on Monday in Asia to a low of 1.3727 yesterday morning. Prices have bounced between 1.3730-1.3830 ever since, and for the moment, the bias is for additional weakness.
The Canadian dollar gains are due to US dollar selling pressure from portfolio managers. The over 4% month-to-date gain in the major US stock indexes, suggests portfolio managers will be selling US dollars to realign their portfolios with their benchmarks. WM Reuters post the FX rates at 11:00 am ET, on the last trading day of the month. The size of the potential flows, combined with thinner than usual FX liquidity, has forced some managers to execute their hedges ahead of the fixing time.
The US dollar pressure also stems from renewed “risk-seeking” demand on hopes of a robust post-COVID-19 recovery. Those hopes may be misguided, judging by the South Korea experience. Officials in that country are re-implementing lockdown restrictions in Seoul, after seeing the largest spike of infections is two months.
The British Columbia Supreme court ruled against Huawei CFO Meng Wanzhou’s extradition to the US fight. The court ruled that the offence Ms. Wanzhou was charged with would also be an offence in Canada, and therefore extradition proceedings could continue.
FX markets will focus on this morning’s release of the US weekly jobless claims report. The forecast is for claims to rise 2.1 million, well below last week’s 2.43 million increase. Better than expected results would suggest the US economy is rebounding quickly, which would support risk-seeking trades. The other US data, including Durable Goods Orders and Q1 GDP, are considered stale, and not a factor for FX traders.
Today’s Suggested Range USD/CAD: 1.3720– 1.3820