The Canadian dollar is suffering from a glut of oil. Or to be more accurate, the risk of a glut of oil. West Texas Intermediate (WTI) the North American benchmark price for crude is down 6.2% since July 30. That move drove USD/CAD from $1.2420 to $1.2550 in the same time frame.
Oil traders are re-evaluating calls for WTI to reach $100.00/barrel by year end in the face of the rising delta-variant coronavirus cases, particularly in China, Japan, and Australia. They are concerned that this fourth-wave outbreak will put the brakes to global growth at the same time as the Organization of the Petroleum Exporting Countries and Russia increase crude production.
NZD/USD was the best performing major G-10 currency overnight. Better-than-expected New Zealand employment data raised led to an Overnight Cash Rate (OCR) increase at the August 18 meeting becoming fully price in. Analysts expect the OCR to be at 1.0% by year end.
NZD/USD climbed from $0.6885 on July 20, to 0.7081 today and traders are looking for a break above 0.7100 to extend gains to 0.7215.
AUD/USD tracked NZD/USD higher, but not to the same extent. Australia is suffering from huge spike in COVID-19 cases, with less than 20% of citizens vaccinated. Authorities have implemented draconian measures to curtail the spread. Soldiers are patrolling the streets of Sydney, the lockdown in Brisbane has been extended, and police go door to door to ensure isolation protocols are being enforced.
European traders are ignoring Asian coronavirus developments. Germany’s DAX index is leading European bourses higher. However, U.S. equity futures are in the red pointing to a negative open on Wall Street. Gold has eked out small gains, and Treasury yields are unchanged.
FX traders are looking ahead to today’s ADP employment report and hoping that it provides a "sneak peak" for Friday’s non-farm payrolls report. However, it is not very likely as the correlation between ADP and NFP results is weak. ADP is expected to show 695,000 jobs.
Traders are more focused on employment than usual because that’s what the Fed is looking at. Fed Chair Jerome Powell said QE tapering would not happen until there was “substantial further progress” toward the Fed’s goals, and he was particularly concerned about weak employment.
Federal Reserve Governor Christopher Waller told CNBC on Monday that if the next two jobless reports come in as strong as the June report, “then I think you’ve made the progress you need." Fed Vice Chair Richard Clarida discusses "U.S. economic outlook and monetary policy" at 10:00 am EDT today. Traders are keen to see if his views align with Powell or Waller.
Institute for Supply Management Services Purchasing Managers Index data is on tap.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
