Home Daily Commentaries The Canadian dollar tests key technical support levels.

The Canadian dollar tests key technical support levels.

Daily Currency Update

The CAD was lifted by reports that US Treasury Secretary Mnuchin has urged President Trump to exempt Canada from the steel and aluminum tariffs. USD/CAD fell towards 1.2950 and opens close to this level in London. It’s these trade talks that will likely continue to drive movements in USD/CAD in the near term, rather than data, although investors will be keeping a close eye out for Friday’s Canadian employment data.

The loonie was weakening around 1% against its USD partner following Headlines about NAFTA negotiations indicating, the US might be moving quickly towards separate bilateral deals. USDCAD jumped to 1.3067 on the news, but it managed to recover and close around 1.2970, still up around 0.20%.

It might have been that the market digested the news and then interpreted the news as relatively positive for the CAD as the US might take a softer stance if dealing separately only with Canada.

Key Movers

China has said that they will purchase 70B of US farm goods if the administration drops the 50B in tariffs scheduled to come into effect July 1st. The European Union yesterday announced a three-tier plan of its own from tariffs, to legal action, and protection of disruptions in its steel marketplace. This is all in retaliation against the US after 25% steel and 10% aluminum tariffs that were put into practice the 1st of June against Canada, Mexico, and the EU. The European duties will be put in place July 1st if an agreement is not reached in time between the US and EU.

The market reaction on currency has been decidedly mixed as other factors come into play such as the ECB announcing the timeline of when QE is done in the EU, the announcement should be stated at the ECB’s interest rate settings and policy meeting next week.

The US dollars has fallen over the last 24 hrs as a global response to US tariffs the dollar index is down one percentage point from yesterday’s high. EURUSD trades at 1.1780 at writing

A bit of a volatile session for the EURUSD yesterday, Italian yields moved up again with the 10-year increasing more than +25bps following Italian Prime Minister Conte's first speech. Referring to fiscal policy, in relation to their will to reduce public debt he mentioned: “we want to do it by increasing our wealth, not through the austerity measures that in recent years have allowed it to grow.” The market didn’t quite like some of the comments and the EURUSD reached day lows following the speech to 1.1660 but it then managed to recover and close the day on positive territory, up 0.15% to around 1.1720 following Headlines around the willingness of the ECB to have a debate about their Quantitative Easing exit on their next meeting.

GBP/USD pushed higher yesterday following the release of better than expected UK Services PMI. The May data showed that business services activity growth expanded at its fastest for three months. It came as a bit of a relief from the negative Brexit headlines of late and a good enough excuse for traders to bid cable higher through London morning’s session.

US ISM Non-Manufacturing PMI was then released at 3 pm BST and beat market expectations, putting a slight dent in the rally in GBP/USD. It slipped back 40-50 points before running into more bids at 1.3350, and it’s continued to push higher overnight.

There aren’t any UK economic data due for release today. Both MPC members Tenreyro and McCafferty are expected to speak today and may give the market some clues as to future monetary policy. Ultimately though, it’s a quiet day on the data front.

The aussie dollar has continued its winning streak overnight. It’s been bid higher on the back of yet more positive economic data, this time by way of better than expected Australian GDP data. Q1 GDP q/q printed at +1.0% vs. forecasts for 0.9%. AUD/USD gapped 30-40 points on the news but has since steadied itself ahead of any break above the 77 US cent mark.

As widely expected, the RBA maintained its current monetary policy stance at yesterday’s meeting keeping the cash rate on hold at 1.5% for the 20th consecutive meeting. While highlighting that recent Australian data has been mainly in line with their forecasts for growth to pick up above 3% in 2018 and 2019, they remain cautious on uncertain areas of the economy, especially consumer spending, low wage growth and inflation. With no substantive changes in tone evident in the post-meeting statement, data on unemployment, wages, inflation and the housing market will remain key for the policy outlook in the near term.

There’s more aussie data on the way later tonight too, by way of Trade Balance. If this data shows a beat and if risk sentiment continues to improve it might see AUD/USD push through that key .77 level.

With NZD specific news relatively scant, the NZD appears to be benefitting from a combination of a weaker USD, an uptick in commodity prices and positive AUD sentiment. Through the past 24 hours the NZD has traded on a 40 pip range spending the majority of the session hovering around the 0.7030 level after touching session highs of 0.7045 in early European trading.

The NZD opens this morning up 0.3% against the CAD, 0.4% against the AUD and lower against the EUR which performed strongly overnight. Looking ahead, global risk sentiment will remain key for both the NZD and the AUD with any deterioration in sentiment presenting downside risks to these risk on currencies. Today’s GDP print out of Australia could also provide some volatility for the NZD due to their positive correlation

Expected Ranges

  • USD/CAD: 1.2859 - 1.2975 ▼
  • CAD/EUR: 0.6562 - 0.6602 ▲
  • CAD/GBP: 0.5750 - 0.5803 ▲
  • CAD/AUD: 1.0083 - 1.0146 ▲
  • CAD/NZD: 1.0951 - 1.1037 ▲