Home Daily Commentaries Canadian Dollar Outlook Rebounds After US Dollar Losses and Rising Oil Prices.

Canadian Dollar Outlook Rebounds After US Dollar Losses and Rising Oil Prices.

Daily Currency Update

The Canadian dollar strengthened against its major challengers in the Asian trading session on Wednesday, followed by a rise in oil prices after President Trump’s decision to withdraw from the landmark nuclear accord with Iran that was agreed in late 2015. The U.S. decision will likely lead to a tightened supply of crude in the global markets. Oil prices returned to 3 ½ year highs yesterday after the decision was announced.

NAFTA still presents the biggest risk to the Canadian dollar and should ultimately be the deciding factor on whether the BOC delivers further rate hikes. The negotiations have been going on for over 8 months. Trade officials from the US, Mexico and Canada have indicated that progress has been made and if an agreement is reached, this should lead to a bullish outlook for the currency.

Strong Canadian building permits data came out strong at 3.1% vs the forecasted 2.0% this morning. CAD strengthened almost half a cent leading up to the announcement this morning. Over the past 24 hours, the loonie edged down to 1.2975 against the USD, with support around the 1.31 region.

Looking ahead for the week we have NHPI, Employment Change and Unemployment data to be released.

Key Movers

The Greenback has softened across the board this morning in the aftermath of President Trump’s decision to withdraw from the Iran nuclear deal yesterday. Demand for safe-haven assets have muted and commodity prices are benefiting as Oil has hit another fresh 3.5 year high of 71.18.

Investors will be looking closely to see how the Fed will react in regards to inflation to an economy that is already at its target. Mainly second tier data released out of the US this morning including PPI, which were mainly below expectations in April, and Mortgage Applications, which grew to -0.4% in May from previous month. Later this morning Crude Oil Inventories will be releasing at 10:30am EST. NAFTA negotiations are still underway, but progress has been slower than expected due to the underlying tariff issue the US is trying to avoid.

EUR/USD has continued its downward trend over the last 24 hours, largely a result of dollar strength and despite the release of better than expected German Factory Orders and a German Trade Balance yesterday morning. The pair now looks close to making a break below the 1.18 figure; this morning’s weaker than expected French Industrial Production print will go a little way to backing this theory. Moreover a lot will depend on the reaction to the news on the Iran deal.

The threat of a snap election in Italy is also weighing on the single currency this morning. As far as data is concerned, there isn’t much on the docket for today, although that’s not to say we shouldn’t expect more volatility, especially so in these trading conditions.

We’ve seen dollar strength across the board all week so far. Of recent, the greenback has been bid higher on safe haven demand, prompted largely by the news the U.S. is pulling out of the Iran nuclear deal and will be re-imposing sanctions. US equities also experienced wild swings before and after Trump’s speech.

The focus in markets remains firmly on the fall-out from Trump’s announcement last night. European leaders are already scrambling in an attempt to keep the deal in-tact and depending on how this story develops, as well as rumors and Iran related headlines, we could well expect to continue to see dollar volatility through until the end of the week, if not longer. To this extend, the release of US producer price data may take somewhat of a back seat this afternoon.

The Australian dollar marked fresh 11-month lows overnight tumbling through 0.75 to touch 0.7434 and was one of the days worst performer when measured against G10 counterparts. Softness across retail sales in March saw the AUD teeter marginally above support at 0.75 throughout domestic trade before a renewed upward run on USD extended losses and pushed the AUD toward and through the lower end of recent ranges.

The Euro’s move below 1.19 amid political turmoil in Italy led the Aussie lower as the USD advanced against a basket of currencies and touched year to date highs despite gains being capped by Trump’s withdrawal from the Iran Nuclear Deal. Although well publicised the US’s withdrawal led to an escalation in risk adverse trade and only dampened demand for commodity linked and emerging market currencies.

Attentions now turn to Westpac consumer sentiment for direction throughout the domestic session in what is a relatively light macroeconomic calendar. Anything near expectations will likely have a muted impact on the AUD and we anticipate direction will be derived from continued US yield plays and expectations for ongoing monetary policy adjustments. Eyes turn to key supports at 0.7430 with a consolidated break beyond this handle opening the door to a possible deeper correct through 0.74 and toward 0.7320.

The New Zealand Dollar remained in its recent holding pattern during domestic trading yesterday, opening at 0.7015 and trading in a twenty pip range in what was a lucklustre session. The RBNZ released its latest inflation expectations for the quarter whereby there was a slight dip to 2.01% for the two year reading and an average one year inflation of 1.8%. In a survey of 100 consumers, there is a chance of wage growth rising at the fastest pace in four years.

With the Kiwi closing stronger at the end of the Asian session and an intraday high of 0.7030, bullish sentiment on the US Dollar resumed overnight with any gains erased in overnight movements. United States Chairman Jerome Powell came out with hawkish remarks regarding markets being well aligned with the Fed rate dot plot causing the NZD/USD to plummet through support levels of US 70 cents and see intraday lows of 0.6955.

With a new yearly low and the Kiwi under renewed pressure once again, investors look to the first monetary policy statement by RBNZ Governor Adrian Orr tomorrow whereby a rate hold at 1.75% is fully priced in. With a change in Governor at the helm, market participants will be looking for any change in stance or rhetoric from recent statements around inflation targets and monetary policy. The New Zealand dollar opens this morning at 0.6970.

Expected Ranges

  • USD/CAD: 1.2835 - 1.2944 ▼
  • CAD/EUR: 0.6515 - 0.6555 ▲
  • CAD/GBP: 0.5694 - 0.5732 ▲
  • CAD/AUD: 1.0362 - 1.0427 ▲
  • CAD/NZD: 1.1070 - 1.1180 ▲