Home Daily Commentaries A lower price of crude is sending the Loonie lower temporarily

A lower price of crude is sending the Loonie lower temporarily

Daily Currency Update

The USD/CAD finally broke to the upside of the recent range between 1.3050 and 1.315. The USD/CAD is up 0.33% this morning, mainly because of one big reason: the weakness in WTI crude oil, which is falling this morning 2%.

The FX markets are always looking ahead, but even with better Canadian economic data, such as the Ivey Purchasing Managers Index at 61.8 published yesterday; the market participants of the Loonie prefer to focus on catalysts around crude, such as the softening in US oil sanctions on Iran, or the production levels of OPEC, or the latest numbers of inventories published by the Energy Information Administration showing US oil inventories at a five-month high this week.

The traditional media is calling that oil is in a bear market, due to deteriorating fundamentals lately; however, it is important to notice the volatility of this commodity, which is already in an area between 58 and 60 per barrel. Crude is not helping the Loonie this week, but crude might find support soon. Crude made a significant low in the 26s back in February 2016, and another “higher low” in the 42s back in June 2017. The 58-60 per barrel is a crucial level for Oil. Additionally, the USD/CAD has important resistances between 1.3200 - 1.3300.

The technical levels to consider for today in the USD/CAD are 1.3150 on the downside and 1.3226 on the upside.

Key Movers

The Greenback started to bounce yesterday even before the FOMC meeting, reversing all its loses of this week right after the FOMC statement showed no significant changes to its monetary policy. However, the American Federal Reserve confirmed that business spending had slowed, but from an accelerated pace while they noted strong household spending growth.

The University of Michigan consumer sentiment had an actual number of 98.30 vs. 98.00 read, IT measures the level of a composite index based on surveyed consumers.

At this moment, the US dollar index is trading at 96.85, representing an increase of 0.25%. The last highs of the index were at 97.21 by the end of October and 96.98 on August 15th.

The technical levels to consider for today for the US dollar index are 96.40 on the downside and 96.89 on the upside. The technical levels to consider today in the USD/CAD are 1.3150 on the downside and 1.3226 on the upside.

The Euro is falling slightly this morning, trading at 1.1352, but it has been giving up most of November’s gains and is slipping back below the 1.1400 handle. Some of the macroeconomic indicators coupled with strong and upbeat Federal Reserve rhetoric forced the common currency toward intraday lows at 1.1327.

Yesterday, the German trade balance numbers evidenced a poor assessment of European economic performance; the actual number was 17.6 billion, which was below the expectation of 18.6 billion. However, the French trade balance numbers were better than expected at a -5.7 billion vs. -6.1 billion read. This persistent softness paired with commentary from the FOMC, following its November policy meeting, drove the euro lower as the gap between economic performance and central bank monetary policy continues to widen.

The technical levels to consider for today for the EUR/USD are 1.1302 on the downside and 1.1400 on the upside.

GBP/USD slipped under 1.3100 in overnight trading session touching intraday lows of 1.2988. The Cable has not been helped by rumors that Theresa May could ask the European Union for more time to get agreement on a draft within her Cabinet. The prime minister is set to meet with her ministers again next week, and unless she gets more time from the EU, if they cannot agree on a proposal by then, the writing could be on the wall for the pound. Meanwhile, the USD made substantial gains across the board yesterday, including against the Pound as the Fed left monetary policy unchanged last night.

On the release side, the gross domestic product for the UK, year to year was released this morning, printing at 1.5% vs. a 1.5% read. Furthermore, according to the Office for National Statistics, the UK economy grew by 0.6% in three months up to September, with warm weather boosting consumer spending, below the previous number of 0.7% though. Finally, the trade balance numbers in the UK showed better numbers than expected this morning, helping the Cable to bounce to an intraday level of 1.3044, but still in an intraday downtrend.

The technical levels to consider for today in the GBP/USD are 1.3000 on the downside and 1.3069 on the upside.

The Australian dollar edged lower through trade on Friday morning having fallen short of extending its recent upside correction. The Aussie failed to stay beyond 0.7300 level, touching intraday highs at 0.7302 before moving toward intraday lows at 0.7233 following the Fed’s commitment to tighter monetary policy. With little domestic data on hand, the AUD was at the mercy of succumbing to broader USD upside.

Despite failing to break above the 0.7300 handle, there is a sense of renewed optimism surrounding the AUD this week. Concerns surrounding the outlook of US fiscal stimulus and the ill effects of political gridlock dampening growth coupled with an improving outlook for US/China trade relations have emboldened investors to drive the AUD higher and prompt a break outside a ten-month downtrend channel.

With little of note on the domestic docket, the focus returns again to important trade discussion with the longer-term AUD outlook heavily reliant on the next round of trade talks between Trump and Xi Jinping at the end of the month. Ongoing positivity could foster a break above 0.7300 level and drive renewed short-term support for the AUD as a proxy to Chinese growth, and critical technical support is the 0.7215 level for next week.

The technical levels to consider for today in the AUD/USD are 0.7235 on the downside and 0.7380 on the upside.

The Kiwi stayed quiet in overnight trading after rising to its highest level in three months on Wednesday. Consolidating below 0.6800, the NZD/USD is trading this morning at 0.6751 after an impressive rally over the course of the week.

With little on the economic calendar to digest, the direction was derived from its US counterpart. The US FOMC rate announcement came in as widely expected but the guidance certainly firmed expectations for a December rate hike.

The technical levels to consider for today in the NZD/USD are 0.6713 on the downside and 0.6800 on the upside.

Expected Ranges

  • USD/CAD: 1.3150 - 1.3200 ▼
  • CAD/EUR: 0.6670 - 0.6695 ▲
  • CAD/GBP: 0.5800 - 0.5820 ▼
  • CAD/AUD: 1.0450 - 1.0500 ▼
  • CAD/NZD: 1.1200 - 1.1269 ▼