CAD - Canadian Dollar
After a weak Loonie in overnight trading, pushed by a pale crude oil price action and a weak Euro, the Loonie is now sharply increasing (USD/CAD is falling by around 0.15 percent) this morning, ignoring the decline in manufacturing sales that came in at -0.6 percent to $57.8 billion in April, following a 2.6 percent increase in March. The decline in manufacturing sales happened for the transportation equipment and primary metal industries.
Initially, crude oil prices did not help the Loonie in overnight trading, and hedge funds increased their bets that crude oil will fall by 46 percent, the most since August, according to CFTC data for the week ending on June 11th. However, at the time of this writing, crude oil is bouncing around 2.5 percent, changing from a pessimistic to an optimistic mood towards the Loonie.
BoC Deputy Governor Lawrence Schembr made a speech in Edmonton yesterday without commenting on the current outlook for the economy or interest rates. However, he discussed the benefits of the country's flexible exchange rate system, which he said acts as a shocks absorber and allows policymakers to run an independent monetary policy. He said, "…the inflation target normally gets most of the attention, so the value of our floating dollar risks being overlooked at a time when the performance of flexible exchange rates is coming under greater scrutiny in international policy circles." He added that Canada's current policy framework has two components: a 2 percent inflation target, and a flexible currency. According to the BoC Deputy Governor, the benefits of floating exchange rates "far exceed" any costs associated with currency volatility, and for Canada, it has helped the economy to adjust to commodity price changes.
Mario Draghi, the head of the ECB, suggested more stimulus for the Euro Zone if inflation doesn't pick up at the forum on central banking in Sintra. The EUR/USD pair plunged to a 15-days low, temporarily breaking the 1.1200 handle. It is trading at 1.1205 at the time of this writing. On top of the dovish news, the ZEW Indicator of Economic Sentiment for Germany decreased sharply in June 2019 and now stands at -21.1 points. This corresponds to a drop of 19.0 points compared to the previous month. The indicator's long-term average is +22.0 points. Despite today's movement in the EUR/USD, with just 11 days left in this quarter to end, this quarter is almost guaranteed to slash the record of low volatility further.
Fed officials are meeting today; the question is whether this is the moment to start cutting rates. FX and equity markets have whipped themselves into a frenzy of rate-cut expectations. Probably, Fed Chairman Jerome Powell, the Donald Trump appointee whose boss disagrees with him, will try to keep as much flexibility as possible, but market participants expect at least a hint of rate cuts, probably by removing the "patience" language.
China continues trimming its holdings of U.S. Treasuries to the lowest level in almost two years as the trade conflict drags on between China and the U.S.
1.3375 - 1.3410 ▼EUR/CAD:
1.4932 - 1.5020 ▼GBP/CAD:
1.6710 - 1.6830 ▼AUD/CAD:
0.9179 - 0.9225 ▲NZD/CAD:
0.8729 - 0.8780 ▲