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The Loonie weakens following pessimistic reports and anemic crude oil prices

CAD - Canadian Dollar

The Loonie weakened sharply in yesterday’s session (USD/CAD pair increased 0.44 percent). In the absence of key data, the BofAML is still expecting the BoC to be on hold this year with its rate. However, it expects the BoC to cut 25 basis points in early 2020. For BofAML, global trade uncertainty remains high, and as a result of higher trade uncertainty, it recently made a number of changes to its global forecasts including downward revisions to growth in the major economies, such as Canada. BofAML lowered its GDP growth forecasts for Canada to 1.3 percent from 1.5 for 2019 and to 1.3 percent from 1.8 percent for 2020.

As noted yesterday, the Loonie started to lose its positive momentum. Apart from the technicals signaling an overbought Loonie, crude oil confirmed a Loonie reversal, tumbling around 4 percent in yesterday’s trading session due to EIA data showing crude inventory at the highest level since mid 2017. This may be a sign that crude oil output is exceeding demand and there may be more fuel for those who fear the U.S.-China trade war is failing the global economy. Nonetheless, in the European session this morning, there was a new narrative regarding crude oil, which increased 3 percent after two tankers were damaged in a suspected attack in the Gulf of Oman, near the Strait of Hormuz. The incident follows attacks on oil tankers near the Persian Gulf last month and once again raises the possibility of a disruption in crude flows.

Technically speaking, the USD/CAD pair is falling this morning towards 1.3320 due to the rise in crude oil, but it is still trading above Monday's close (1.3284). Furthermore, given that in the long-term, we are trading above the 200 moving average, it looks like the USD/CAD pair might continue to find support at 1.3313 and 1.3288 today. Above the current price of 1.3320, it might find resistances at 1.3356 and 1.3430.

Key Movers

The Aussie dollar led G-10 currency losses after the country's after employment rate held steady at 5.2 percent in May, missing the estimate for a drop to 5.1 percent. Employers added a net 42,300 jobs. However, the three-year bond yield slid to a new record low as market participants increased the probabilities that the central bank will cut interest rates to stimulate the slowing economy. The Aussie dollar is falling 0.23 percent versus the Greenback this morning.

In the U.K., with Theresa May stepping down as Conservative Party leader, her position and with it the job of Prime Minister will go to one of many candidates standing to replace her. So far, Boris Johnson tops first vote in the U.K. Conservative Party election; Boris Johnson won the most votes, and three others were knocked out (Leadsom, Harper, McVey). Seven proceed to the second vote next week: Boris Johnson, Jeremy Hunt, Michael Gove, Dominic Raab, Sajid Javid, Matt Hancock, and Rory Stewart. The Pound increases 0.18 percent versus the Kiwi dollar and 0.27 versus the U.S. dollar.

The U.S. dollar was stronger in yesterday’s trading session, as weak US CPI wasn't enough to move Fed expectations.

Finally, the ECB is worried that a manufacturing slump that's taken hold in the Euro area will spread to other parts of the economy, deepening the region's slowdown. Figures Thursday show that industrial output fell for a second month in April — along with a downward revision to March. The EUR/USD pair falls 0.14 percent this morning.

Expected Ranges

USD/CAD: 1.3311 - 1.3364 ▲

EUR/CAD: 1.4995 - 1.5040 ▼

GBP/CAD: 1.6858 - 1.6950 ▼

AUD/CAD: 0.9138 - 0.9216 ▼

NZD/CAD: 0.8692 - 0.8782 ▼