The Canadian dollar got spanked yesterday. Traders were unhappy about plunging oil prices and disappointed that Canadian inflation failed to rise higher than forecast. USD/CAD rallied from $1.2548 just ahead of the Consumer Price Index release to $1.2620 by late afternoon.
Canada CPI rose 4.7%, while Core CPI rose 3.8% y/y compared to forecasts for a 3.5% rise. Perplexingly, the Bank of Canada’s preferred measures of Core CPI, trim, medium, and common, didn’t show any change. That result is certainly not what Canadian consumers are experiencing.
The Canadian dollar plunge was more a factor of oil prices than Canadian economic data. West Texas Intermediate (WTI) dropped over 9.0% since November 9, falling from $84.77/barrel to $77.11/b overnight. Oil traders started selling after forecasts from the Organization of the Petroleum Exporting Countries and the International Energy Agency (IEA) predicted that the oil market will be over-supplied in the coming months. The news came as Chinese and American officials were discussing releasing crude from Strategic Petroleum reserves.
WTI oil prices have rallied since August and the current uptrend is intact while prices are above $70.00/barrel.
EUR/USD bounced from $1.1315 to $1.1349 on the back of profit-taking after falling sharply this week. However, the gains are merely a correction as the single currency will continue to suffer from the belief that European Central Bank monetary policy tightening will significantly lag the Fed and other central banks. EUR/USD gains may also be capped due to renewed coronavirus concerns. Germany is expected to announce new restrictions today.
GBP/USD managed to snap a short-term downtrend when prices moved above $1.3440 yesterday. The gains were due to a thawing of Brexit tensions as the E.U. and U.K. announced progress on some Northern Ireland border issues.
USD/JPY bounced off of resistance at $1.1500 yesterday and consolidated in a 113.89-114.26 range, coinciding with the U.S. 10-year Treasury yield dropping from 1.646% to 1.58% overnight. The Japanese government announced a larger than expected $488.0 billion stimulus program to combat the impact of the coronavirus.
NZD?USD surged to $0.7051 from $0.6997 after Reserve Bank of New Zealand Q4 expectations rose 2.90% q/q, much higher than expected. Analysts immediately amended interest rate forecasts to reflect more aggressive rate hikes in 2022. AUDUSD drifted higher but underperformed its Kiwi cousin.
U.S. weekly jobless claims and Philadelphia Fed Manufacturing data are ahead.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
