Canadian Dollar Update, October 18, 2021 – Canadian dollar rally stalls
USD/CAD Open: 1.2391-95, Overnight Range: 1.2351-1.2408, Previous Close: 1.2363
WTI Oil is at $82.45 and gold is at $1,764.50. US markets are mixed today.
For today, USD resistance is at 1.2386. Support is at 1.2361.
• Weak China data sours risk mood
• BoC Business Outlook Survey today
• US dollar claws back gains: NZD and GBP outperform
The Canadian dollar is consolidating Friday’s gains with surging oil prices helping to offset broad US dollar demand from rising US Treasury yields.
USDCAD bounced between 1.2335 Friday and 1.2408 in early European trading today before retreating to 1.2391 in early Toronto trading. USDCAD jumped in Asia after global risk sentiment took a turn for the worse.
Bank of England (BoE) Governor Andrew Bailey turned the focus to interest rates after weekend comments suggesting rising inflation could force the BoE to tighten policy.
He said “Monetary policy cannot solve supply-side problems – but it will have to act and must do so if we see a risk, particularly to medium-term inflation and to medium-term inflation expectations.” And in case traders were not getting the message he added, “And that’s why we at the Bank of England have signalled, and this is another such signal, that we will have to act.”
Those inflation concerns hit home in New Zealand when Q3 inflation data showed CPI surged to 4.9% y/y, from 3.3% previously. The rise was the fastest pace in 10 years, leading some analysts to predict that the RBNZ will raise rates by another 1.0% in the coming months.
Weaker than expected China data exacerbated global growth fears. Q3 GDP rose 4.9% y/y compared to expectations for a 5.0% increase. Industrial Production also disappointed, rising 3.1% compared to 5.3% previously.
Traders were not impressed by comments from the Peoples Bank of China (PBoC) governor suggesting that authorities could contain the risks to the economy. Traders are worried about China’s property sector woes.
West Texas Intermediate oil prices continued to rally, touching 83.85 in early NY, a rise of 2.6% from Friday’s low. Prices continue to be underpinned by expected supply shortages in Q4, which will be exacerbated if forecasts for colder than usual weather prove accurate.
The surge in oil prices limited Canadian dollar losses due to rising interest rate fears.
EURUSD is rangebound, drifting inside the 1.1671-1.1726 range that contained price action since last Tuesday. ECB President Lagarde repeated comments that inflation gains were transitory, which weighed on prices.
GBPUSD gains on the back of the hawkish BoE Governor’s comments were limited due to concerns about the negative impact to domestic growth from the UK energy crisis and the ongoing EU/UK Brexit dispute over the Northern Ireland border.
There are not any top tier US economic releases today. The Bank of Canada releases the quarterly Business Outlook Survey which is expected to be upbeat.
Today’s Suggested Range USD/CAD: 1.2320 – 1.2420