Canadian Dollar Update May 31, 2019 – Canadian Dollar sinks with Mexican Peso
USD/CAD Open: 1.3547-1.3548 Overnight Range: 1.3493-1.3566
The Canadian dollar was rangebound in overnight currency exchange markets. Oil is at $55.09 and gold is at $1,303. US markets are lower. Canadian GDP data is scheduled to be released today.
The short-term USD/CAD technicals are neutral-bearish. For today, USD resistance is at 1.3585. Support is at 1.3492.
The Canadian dollar was caught in the middle of a war of words between President Trump and Mexico. Mr. Trump tweeted “On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP. The Tariff will gradually increase until the Illegal Immigration problem is remedied,.. ....at which time the Tariffs will be removed. Details from the White House to follow”.
Markets were caught off-guard. USDMXN soared to 19.8251 from 19.1436 for a gain of 3.56%. The Canadian dollar was not unscathed. USDCAD jumped to 1.3540 from 1.3490 and then extended the rally in early Toronto trading.
The risk aversion sentiment wasn’t all due to Trump and Mexico. China announced measures to counter the US blacklisting of Huawei corporation. China is creating an “unreliables” list. Bloomberg reported China would create a mechanism to list foreign enterprises, organizations and individuals that don’t obey market rules, violate contracts and impede supply to Chinese companies, for non-commercial reasons.
These events occurred even as US Vice President Mike Pence was in Ottawa to help convince Trudeau to get the United States Mexico Canada Agreement (USMCA) on trade, ratified.
The Japanese yen soared on demand for safe-haven assets and a steep plunge in US Treasury yields which also fueled a 1.62% decline in the Nikkei 225 index.
China Manufacturing PMI slipped into contraction territory in May. The PMI index was 49.4 compared to April’s 50.1. Traders viewed that data as further evidence that global growth may be slowing.
Free-falling crude oil prices exacerbated the risk aversion sentiment. Oil traders sold West Texas Intermediate (WTI) knocking it from $59.18/barrel at yesterday’s New York open to the overnight low of $54.88/b, a loss of 7.3%.
Month-end portfolio rebalancing flows added another layer of demand. The steep decline in US equity indices during May triggered US dollar demand, which was evident against Sterling and the Canadian dollar.
GBPUSD continued to drop overnight, falling from 1.2627 to 1.2561 in early Toronto trading. Sentiment is extremely negative due to bearish technicals and political dysfunction raising the odds for a “no-deal” Brexit.
The Canadian dollar is under pressure. Falling oil prices, month-end demand for US dollars, bullish USDCAD technicals, and fresh risk aversion sentiment combined to undermine prices. Bank of Canada Deputy Governor, Carolyn Wilkins’ speech in Calgary, yesterday, didn’t help. She repeated the BoC view that rising trade tensions are a concern for the domestic economy, which reinforced the market view that Canadian interest rates will remain where they are, at least until the late fall.
There is plenty of US data as well as Canada March GDP on tap today, which suggests a lively month-end trading session.
Today’s Suggested Range USD/CAD: 1.3500 – 1.3600
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