The Canadian dollar is feeling the pressure. The pressure comes from being a major commodity exporter at a time when commodity prices (a demand) is slipping. The China/U.S. trade dispute is at an impasse. The White House says it won’t entertain new trade talks until China delivers some concrete proposals to address U.S. concerns. China says it won’t be "bullied." China President Xi Jinping may meet with President Trump at the G-20 meeting scheduled at the end of November. However, that meeting may be scrapped if there isn’t a trade proposal from China.
Soft oil prices and concerns that prices could fall further have undermined the Canadian dollar as well. The full U.S. sanctions on Iran come into effect on November 4 which are expected to cut Iran’s oil exports sharply. The White House said the "sanction waivers" for companies doing business in Iran might be difficult to get. Concerns about an oil shortage due to the Iran sanctions have been replaced by fears that a global economic slowdown and rising US inventories will reduce demand and weigh on prices.
The Canadian dollar is under pressure because of a global drift into risk aversion trades. The global equity market sell-off has spooked traders with memories of the 2008 financial crisis haunting them. They are buying U.S. dollars and Japanese yen. The Swiss franc, a usual safe-haven currency is sidelined, to a degree, by eurozone and U.K. political developments.
U.S. dollar demand following yesterday’s European Central Bank (ECB) monetary policy meeting has weighed on the Canadian dollar as well. EUR/USD was modestly supported ahead of the meeting in case ECB President Mario Draghi offered a hawkish spin in his remarks. He didn’t, and EUR/USD sellers emerged which sank the Canadian dollar in the process.
FX markets appear to have forgotten why they bought Canadian dollars after the Bank of Canada policy meeting statement and the Monetary Policy Report (MPR) were released on Wednesday. At the time, traders believed that the risk for a faster pace of domestic rate hikes had risen with some analysts forecasting another rate hike in December. They forgot that sentiment after a meltdown on Wall Street led to a global stock market selloff.
The U.S. dollar is closing the week with large gains, led by a 2.01% rise against Sterling, although that move had everything to do with U.K. politics and Brexit developments than it did with global influences. The New Zealand dollar was the second-worst performing currency.
Canadian dollar traders are looking ahead to Wednesday morning’s Q3 Gross Domestic Product release. The forecasts range from 3.2% to 4.2% with consensus sitting at 3.3%. A higher than expected result may alleviate concerns about a global economic slowdown and shift market sentiment to positive. If so, stock prices will rise and the Canadian dollar as well.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
