Home Daily Commentaries The Canadian dollar finds support in oil

The Canadian dollar finds support in oil

Daily Currency Update

The Canadian Dollar continues to find fair value in a three-week trend channel from 1.2820 to 1.2886. Even with oil prices climbing to trade over 70 dollars a barrel for West Texas Intermediate. The recent spike in oil today is due to the uncertainty of the Iran accord. President Trump has voiced his concerns about the 2015 agreement, and market participants are looking at the possibility of sanctions on Iran putting a strain on the Middle East supply chain.

At the end of the week, we will have Canadian employment numbers and the unemployment rate reported at 8:30 am on Friday, the consensus is for 20 thousand jobs started for April and the unemployment rate to remain at 5.8%.

Key Movers

The US Dollar recorded its best week of the year, up around 1.2% and almost reaching 2017 closure levels. It started Friday with a slight gain, probably related to the lack of progress made on the US-China trade talks but it then dropped close to session lows after US non-farm payrolls came weaker than expected for April (164k vs. 193k expected). It didn’t take long for the USD to recover and reach levels not seen since January. Non-farm payrolls came weaker than expected, but March number was revised higher to +35k. Manufacturing payrolls came stronger, and more importantly, the unemployment rate dropped to 3.9% (vs. 4% expected), the lowest since December 2000.

For the week ahead, US Consumer Price index will be released on Thursday, and we will have the next round of US-China trade talks, if headlines start showing further threats of tariffs, expect more USD strength, on the back of risk-off sentiment. Also, Geopolitics will remain in focus this week as President Trump is supposed to decide by May 12th if the US pulls out of the Iran nuclear deal.

Not a great week for the Euro, down more than 1% against the USD and very close to 2018 lows around 1.1890. It seems the market didn’t quite like Wednesday’s GDP quarterly growth, which dropped to 0.4% in Q1 from 0.7% in Q4, nor Thursday’s core inflation miss, down to 0.7% from 1% last month.

The technical picture isn’t aspiring either; the EUR was not able to climb back above the critical 1.20 level, opening this morning flat at 1.1960, with technical support at around 1.1925 and resistance at 1.2015 (200-day moving average).

It will be a light week of data for the Eurozone, with Industrial production on Tuesday and Wednesday for Germany and France respectively.

The Great British Pound on Friday reached a 4-month low of 1.3484 against its US dollar with the primary focus being decreasing hopes of a Bank of England’s rate hike this month. The central bank is having its monetary policy meeting on Thursday which will also see the release Industrial Production figures for March and quarterly Inflation Report.

The GBP/USD pair fell for a ninth consecutive day last Friday and is now trading at 1.3540. We continue to expect support to hold on moves approaching 1.3500 while now any upward push will likely meet resistance around 1.3590. Looking ahead today UK banks will be closed in observance of May Day.

The Australian dollar edged marginally higher into the weekly close but remains largely unchanged following a mixed U.S Non-Farm Payroll Print. Softness across wage growth and broader employment gains saw the AUD enjoy short-term upside bouncing to intraday highs at 0.7540 before correcting lower as yields recovered and the U.S Dollar regained its upward momentum.

Despite finding support at and around the psychological 0.75cent handle the AUD remains under broader downward pressure and we expect an extended period of softness as investors sell into upward rallies and the US dollar marches ever higher. Having seen US interest rates outpace their G10 counterparts and global equities fall investors are shortening AUD holdings as the currency loses its real term yield advantage. With little scope for an RBA rate hike in the near term, we expect upside momentum will be hard fought with support at 0.75 remains critical to stemming the flow of deeper downward corrections.

Attentions now turn to the NAB business confidence survey for direction through trade on Monday while Retail Sales (Tuesday) headlines what is otherwise a quiet macroeconomic calendar. The path again will primarily be drawn from fluctuations in US Yield returns with the central focus around the 3% handle on 10-year notes. A break above this level could signal another bullish upturn for the world’s base currency and a deeper AUD depreciation.

The New Zealand Dollar declined marginally lower for the week despite a general theme of US Dollar strength. With US employment figures released in North America on Friday evening, the Kiwi held above support levels at US 70 cents. Opening the domestic session at 0.7040, we saw small gains to an eventual intraday high of 0.7054 and tapering off into the European Open.

Despite dips below 70 US Cents on Friday evening, support levels held firm heading into the week with a close at 0.7020. This week investors focus on Thursdays RBNZ rate statement where it is expected official cash rates will remain on hold at 1.75%. Despite Unemployment figures last week released at a decade low of 4.4%, wage growth continues to be a primary hindrance on any forecast of rate hikes which is currently priced in at a 40% chance for Q2 2019.

With a lack of any significant economic releases today, The local market will look towards tomorrow’s inflation expectations for the quarter with the New Zealand dollar opening this morning at 0.7015.

Expected Ranges

  • USD/CAD: 1.2820 - 1.2903 ▲
  • CAD/EUR: 0.6497 - 0.6535 ▲
  • CAD/GBP: 0.5733 - 0.5750 ▲
  • CAD/AUD: 1.0301 - 1.0367 ▼
  • CAD/NZD: 1.1035 - 1.1085 ▼