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The Loonie continues to shine, helped by crude oil and US dollar depreciation.

Wednesday 20 February, 2019

Daily Currency Update

The USD/CAD pair continues falling, shedding around 100 pips from the start of the week. One of the main reasons is that the barrel of crude oil (West Texas Intermediate) for March delivery held close to USD 56, and crude remained at a three-month high despite all the current global growth concerns. Furthermore, Saudi Arabia’s production cuts continue to keep a floor under the price. This morning, the Loonie is one of the best performers amid a consolidation of US dollar losses from yesterday. All the major currencies, such as the Euro, Pound, Yen, Aussie and Kiwi dollar, are losing slightly this morning, except for the Loonie, which is appreciating around 0.22 percent against the US dollar this morning. The reason: the price of crude. Of course, another main catalyst other than crude was the US asking China to keep its currency stable. However, this should be taken with caution; Guan Tao, former Director General of Balance of Payments at the State Administration of Foreign Exchange in China said, "…any promise would be unlikely to be very specific. It's more likely to resemble a framework as the problems won't have specific solutions in such a short period." He added, "…a discussion of Yuan exchange rate stability should not only impose responsibilities on China, but also require cooperation from the US, such as by reducing trade frictions, slowing the pace of Fed interest rate hikes, and maintaining a stable US dollar." Technically speaking, the USD/CAD pair might fall to around 1.3133 - 1.3150 this week if the “risk on” environment continues.

Key Movers

The US dollar index is rising slightly this morning (0.1 percent) as talks between the US and China on the trade agreement restart in Washington today. Vice Premier Liu He scheduled to meet US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on February 21-22nd. At an industry conference yesterday, Steve Censky, the Department of Agriculture’s Deputy Secretary, said that talks are “picking up” ahead of the March 1st deadline for the imposition of new tariffs. However, regarding the US-European Union trade relationship, the auto tariffs that President Donald Trump is threatening would be just the latest problem for companies battling cooling markets across the planet. The European Union has vowed prompt retaliation on any levies, specifically against any U.S. tariffs on car imports. Jean-Claude Juncker told a German newspaper that the EU wouldn't buy U.S. soy and LNG if Trump breaks a truce agreed to in July. This situation could weigh in favour of the US dollar in the near-term.
The Euro has started today on the back foot with EUR/USD pushing down around ten pips early in the trading session. However, it is likely that the growing likelihood of an extension to Article 50 being requested and reports that EU car sales will be exempt from US tariffs will push the shared currency higher later. Furthermore, the monthly German ZEW Economic Sentiment came in at -13.4 when the expected number was -14. Once again, economists are pessimistic on the state of the German economy although the actual numbers were less negative than expected. The EUR/USD pair is trading around the 1.1300 handle this morning.
It was another tumultuous day in British politics yesterday as seven Labour MPs decided to break ranks from the party in protest at the way Jeremy Corbyn was leading the party. Luciana Berger, Anne Coffey, Mike Gapes, Chris Leslie, Angela Smith, Gavin Shuker, and Chuka Umunna are all now standing as independents in parliament in protest at supposed bullying and anti-Semitic views within Labour’s hierarchy. It should be noted that all seven MPs are calling for a second referendum, which may be a reason why the Sterling moved higher as the news was announced. As mentioned yesterday, there is another series of talks between PM Theresa May other cabinet members and EU representatives this week as May tries to break the deadlock before a vote in parliament due on February 27th, which could see May lose control of negotiations and an extension to Article 50 being requested. GBP/USD trades around 1.2951, a 0.25 percent increase.
The minutes from the Reserve Bank of Australia were released overnight showing that policymakers are currently in no mood to adjust interest rates. The RBA is currently seen as being of neutral bias with the global trade war impacting the health of Australia’s biggest trading partner, China’s, economy. Recent falls in house prices were also highlighted as an area of concern; however, given the enormous rises seen over the last years, a correction could be seen as a good thing. The Aussie was relatively unmoved by the publication as nothing unexpected was stated. The AUD/USD pair trade lower at 0.7114, a 0.24 percent lower.
The NZD/USD pair currently sits at 0.6833 in a week devoid of any domestic data of note. Developments regarding the US-China trade talks and the FOMC minutes will be the main mover of the Kiwi this week.

Expected Ranges

  • USD/CAD: 1.3225 - 1.3325 ▼
  • CAD/EUR: 0.6650 - 0.6700 ▲
  • CAD/GBP: 0.5750 - 0.5950 ▼
  • CAD/AUD: 1.0550 - 1.0605 ▼
  • CAD/NZD: 1.0993 - 1.1090 ▼