Canadian Dollar Update October 18, 2019 – Canadian Dollar driven by external influences
USD/CAD Open: 1.3136-1.3137 Overnight Range: 1.3131-1.3145
Oil is at $54.32 and gold is at $1,494.60. US markets are mixed today.
The short-term USD/CAD technicals are neutral-bullish. For today, USD resistance is at 1.3160. Support is at 1.3120.
The Canadian dollar is at the mercy of external developments and, for the moment, they favour the currency. Three key global themes are taking turns driving broad US dollar moves. They are Brexit and Eurozone dynamics, China/US trade negotiations, and the US Federal Reserve.
The Brexit drama comes to a head on Saturday. UK Members of Parliament will vote on Prime Minister Boris Johnson’s Brexit deal, and analysts say odds for success or failure are 50/50. If Mr. Johnson prevails, GBPUSD will rally toward 1.3300. In turn, it may spark broad US dollar selling due to improved risk sentiment. The Canadian dollar would trade firmer as a result. A rejection of the Brexit plan would weaken GBPUSD and the so-called “riskier currencies,” which includes the Loonie.
Brexit is not just a UK issue. The European Central Bank (ECB) blames a lot of Eurozone growth problems on the uncertainty that Brexit created. The lack of a deal would continue to impact growth and ensure the ECB maintains its dovish outlook.
FX markets saw a flurry of positive risk sentiment at the start of the week following news that China and the US had a partial trade deal. That sentiment faded due to the lack of details. President Trump tweeted that China would buy $40-50 billion of US agricultural products.
However, Chinese authorities did not confirm the amount. China’s Ministry of Commerce spokesman Gao Feng said that the US needed to remove tariffs to achieve an agreement. That doesn’t seem likely, suggesting the talks will drag on well into 2020. The Canadian dollar tends to rise or fall, on the prevailing trade deal sentiment.
Another market-moving factor is the Federal Reserve’s monetary policy outlook. Fed Chair Jerome Powell appears unable to discern any clarity to the longer-term outlook. The lack of clarity, contradicting economic data, and anti-Fed interest rate policy tweets by President Trump have fueled FX volatility.
FX markets are ending a busy week on a subdued note. AUDUSD and NZDUSD traded with a modestly firming bias overnight despite weaker than expected China Q3 GDP data. Q3 GDP rose 6.0% rather than the 6.1% that was forecast. Prices were underpinned by broad US dollar weakness.
The Canadian dollar will continue to track broad US dollar moves. Nevertheless, prices are unlikely to break out of the 1.3120-1.3180. trading range as there isn’t any top tier Canadian or US economic data available today.
Today’s Suggested Range USD/CAD: 1.3090 – 1.3190
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