The Canadian dollar tested both ends of its recent range yesterday, and it is probing resistance in early Toronto trading today. USD/CAD attempted to break significant support at $1.2000 yesterday, but it ran out of steam at $1.2008. The subsequent reversal was nasty, and it took prices to $1.2071, where they closed, in a move fueled by broad U.S. dollar demand and not Canadian influences.
The Organization of the Petroleum Exporting Countries and Russia agreed to continue to gradually phase out previously announced production cuts, which was expected. The cartel expects that the supply imbalance due to the pandemic will be corrected this year and may adjust production quotas in June.
West Texas Intermediate (WTI), the North American benchmark price, rose from $67.81/barrel in Asia to $68.45/b in New York trading today.
The rise in oil prices helped boost the S&P TSX index to 19,731.00 from 19,135.00 two weeks ago. Those gains are another source of support for the Canadian dollar.
The Canadian dollar outlook is promising in part because the Bank of Canada may raise domestic interest rates sooner than the Fed. The third-wave coronavirus pandemic delayed the Canadian economic recovery compared to the U.S., but the Canadian recovery is gaining momentum, which fueled Canadian dollar demand.
Overnight, FX markets were choppy but rangebound. The major Asia equities posted gains except those in China. The major European equity indexes are higher, and Wall Street equity futures suggest a positive open.
China is attempting a personality makeover. President Xi Jinping told officials that he wants to create a "trustworthy, lovable, and respectable image for the country." He said the country must "make friends extensively, unite the majority and continuously expand its circle of friends with those who understand and are friendly to China."
It remains to be seen if the proposed "new image" will improve China’s relationships.
EUR/USD is trading at the bottom of its overnight $1.2165-$1.2226 range. German March Retail Sales were weaker than expected which weighed on the currency pair. European Central Bank Board member and Dutch Central Bank Chief Klaas Knot said the Dutch economy was recovering more quickly than expected and that he was positive about Eurozone economic growth. The comments were not anything new and were ignored.
FX markets will chop about aimlessly today, with only the release of the U.S. Beige Book providing any interest.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
