Home Daily Commentaries Loonie Remains Elevated after Inflation Reaches a Seven-Year High of 3%.

Loonie Remains Elevated after Inflation Reaches a Seven-Year High of 3%.

Daily Currency Update

The Canadian dollar is trading on broader market sentiment with base metals and energy prices on the rise to start the week. Gold overnight top out at 1196.00 is down 6 dollars at writing but is still up on the day at 1190.87. WTI is up 0.63% to 65.90 dollars per barrel, as market participants would instead take on positions as Iranian sanctions imposed by the US are causing global oil giants to cut lucrative energy projects in Iran.

US President Donald Trump overnight stated that he disagrees with the Federal Reserve’s decision to raise interest rates and said the Fed should give him some more help. The remarks caused a sell-off for the Greenback overnight, and commodity-based currencies rallied.

Canadian Wholesale Trade numbers fell well short of previous and expectations of 0.9% and posted a mere -0.8%. The economic data has been overlooked as the loonie overnight moved through key support of 1.3029 eyeing next support of 1.2987 resistance is seen at 1.3071.

Key Movers

US economic data is light today with no fundamentals being reported. Tomorrow we will have lots to view and gauge the pulse of Retail Sales at 8:30 am EST as well as the Fed minutes will be released at 2.00 pm.

The market saw outflows from the USD yesterday as hopes over the upcoming US-China trade negotiations gathered pace alongside comments from President Donald Trump. Trump was critical of the Federal Reserve and Jerome Powell in a Reuters interview and said he was hoping to get a little help from the Fed. The comments are not the first time that the President has stepped away from tradition and been critical of the Federal Reserve’s current rate hike path, with two hikes already this year and another on the near horizon.

From a technical perspective, the EUR/USD pair rallied to a high of 1.1491, its highest in over a week. The USD/JPY pair traded as low as 110.00 on the back-easing Treasury yields and comments made by Donald Trump on monetary policy.

The Euro has bounced back from last week’s 13-month lows against the USD. Having flirted dangerously with 1.12, the Euro is now thoroughly holding onto 1.15 due to a combination of the USD outflows (see Trump’s comments) and slightly more confidence in Turkey. No significant eurozone data is coming out for the markets until Thursday.

The Euro extended its early week gains, opening this morning at 1.1490 despite fresh concerns from Italy. The catalyst for the shift upwards was attributable mostly to USD weakness after US President Trump and FOMC Member Bostic both commented on the economy. Nevertheless, the Euro finds itself at its highest point in over a week.

The Euro traded within a tight 30-pip range for much of Monday with little to drive momentum on the economic calendar. However, the market did start to heat up after the Italians took the spotlight. After the tragic Genova bridge collapse, the Italian government wants to spend €80 billion on infrastructure. The move, however, would breach EU budgetary rules, potentially outlining a conflict with the broader union. The Euro shed some of its earlier gains and was whittled lower against the Greenback as investors took the news from Italy poorly.

The Great British pound crept upward through trade on Monday pushing back through 1.2750 and testing resistance at 1.28. In the absence of any significant data sets or Brexit news, Sterling found upside momentum following comments from US President Donald Trump wherein he criticized the FOMC and Federal Reserve for raising interest rates.

The President openly opined Fed President Jerome Powell’s path to tighter monetary policy suggesting “I’m not thrilled with his raising of interest rates.” It is the 2nd time through the last two months Trump has openly criticized the Fed adding to short-term downward pressure on the USD. While Sterling took advantage of the dollar’s downturn upside support remains stretched with the UK openly vulnerable to broader Brexit weakness. The GBP has suffered consecutively weekly depreciation through the last six weeks and touched 14-month lows last Wednesday. Marking a 12% depreciation through the four months since April.

While the GBP has found some support through the last three sessions value remains hamstrung by broader Brexit expectations, and we anticipate increasing volatility through the next six weeks leading into the next round of EU negotiations.

The Australian Dollar has managed to hold above 73c vs. the U.S Dollar amid an interview between President Trump and Reuters. In an exclusive, he said that he has “no time frame” for ending the trade dispute with China and also expressed his disappointment with the recent Federal Reserve hikes saying he wasn’t “thrilled” with the Fed Chairman Powell. With an improvement in risk appetite, the Greenback along with US bond yields fell aiding the Aussie recovery to touch a high of 0.7344.

Looking ahead, RBA minutes and a speech by Governor Philip Lowe are the main risk events this morning. There is unlikely to be any change in their message where the RBA expects a slow shift towards full-time employment and a rise in inflation. Any moves by the RBA will likely be a rise but not for some time still.

It was a quiet day on the currency front as the New Zealand Dollar traded in a tight range after opening the local session at 0.6661 against the US Dollar. The Kiwi drifted to eventual intraday lows of 0.6612 after failing to capitalize any momentum from Friday's gains.

The Kiwi received a boost overnight as equity markets saw a slight move higher as calm has been restored in the short term for Turkey, emerging markets and trade talks between the United States and China.

Only the lower tiered visitor arrivals & credit card spending data is scheduled for release today before we look forward to the latest Global Dairy Trade Auction reading. The New Zealand Dollar opens this morning at 0.6661.

Expected Ranges

  • USD/CAD: 1.2987 - 1.3171 ▼
  • CAD/EUR: 0.6653 - 0.6681 ▼
  • CAD/GBP: 0.5975 - 0.5994 ▲
  • CAD/AUD: 1.0426 - 1.0460 ▲
  • CAD/NZD: 1.1503 - 1.1568 ▼