Daily Currency Update

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Market participants ignore the perception of weak Canadian fundamentals and follow crude oil price action.

Isaac Figueroa

The Loonie seems to rally lately when there is no local data and when the global equity market is in a rally mode. This is precisely what is happening right now. However, the Loonie did not rally yesterday despite all other major currencies, such as the Euro and Aussie dollar, rallied against the Greenback. This morning though, the USD/CAD fell (Loonie rallied) around 0.60 percent after crude oil reached almost USD 60 a barrel following the commitment by OPEC and its partners to continuing production cuts until at least June.

The improvement of the "risk on" environment did not stop there; China could triple its purchases of US agricultural products in two to five years, said Secretary of Agriculture, Sonny Perdue. China offered some desirable numbers as part of the trade negotiations, although there are still concerns in areas such as biotechnology. China has already made some good faith purchases of soy after declaring a trade truce in December.

Technically speaking, the USD/CAD broke an intraday support around the 1.3300 handle, and if the bullish environment continues in the markets, it might test the 1.3200 handle. If this happens, there is a risk that the uptrend seen since September 2017 is broken, despite that the perception of Canadian fundamentals is deteriorating.

The US dollar index continued to bleed this morning, falling 0.17 percent. Market participants are expecting the FOMC to keep its "patient" guidance and hold its Fed funds without changes through the next several meetings. Fed policymakers are awaiting clarity on global financial and economic uncertainties, despite that conditions for the year remain "favorable" according to Jay Powel in one of his last speeches.

Some Fed economists are worried about external factors such as: slower growth abroad; internally weak retail sales at year-end, which could provide negative signals on consumer spending; and minor upward pressure on trend inflation at the start of the year. When you see the US dollar price performance against most of the major currencies, it is falling. It is even losing against the Euro. The peculiar part is that the Euro-zone economy has its own problems. The ECB’s downgrade of the growth outlook this month was one of the biggest in years.

What if there is a surprise? Some factors would need to be aligned for the Fed to resume raising rates; for example, price pressures would need to increase in a way that cannot be attributed to brief forces. However, geopolitical uncertainty and other risk factors holding back growth would need to abate as well.

The Euro kicked off Monday on the right foot, and it continues going higher this morning, touching an intraday high of 1.1362, representing a 0.10 percent increase. The EUR/USD is supported by better numbers in the German ZEW survey expectations for March, which came in at -3.6 versus -11 expected, as well as, the Euro Zone ZEW survey (economic sentiment) for March, which came in at -15.1 when the previous number was at -16.6.

The GBP/USD pair dipped below 1.3200 yesterday after the Speaker of the House of Commons, John Bercow, ruled out another vote on Theresa May’s deal unless MPs are provided with a new motion, citing a convention dating back to 1604. It doesn’t leave much time and with only 11 days to go until the UK officially leaves the UK, albeit the date is likely to be extended if no deal can be reached before then, some ministers are warning of a “constitutional crisis.”

Even if the government does end up ramming a third vote through, it won’t make too much sense until they’re able to reach some agreement with the DUP. According to some reports, these talks with the DUP are stalling. Moreover, yet, GBP/USD has recovered overnight because in many respects not much has changed; either a deal still may be voted through before the end of March, or the deadline is extended.

Other than Brexit headlines, traders will be keeping an eye on average earnings and employment data today. At the time of this writing, the GBP/USD is trading at 1.3255 representing a small 0.02 percent increase.

The AUD/USD pair edged higher through trade on Monday, creeping back above 0.7100. With little data released, the AUD rallied to touch two week and intraday highs at 0.7120 as equities continued to drive increased risk demand and a jump in iron ore prices underpinned AUD/USD bids. In its minutes overnight, the RBA noted “significant uncertainties” on the economic outlook, but it didn’t come as much of a surprise, and the AUD/USD pair remained unmoved. The AUD has struggled to break outside ranges of late, and it is touching a critical technical level. We are awaiting its next move following the FOMC announcement tomorrow afternoon.

The New Zealand dollar edged higher during the domestic session yesterday in what was a quiet start to the week. Opening at 0.6848, the Kiwi moved higher to an intraday high of 0.6874 on broader US dollar weakness, trading in a thirty-pip range overnight.