The Canadian dollar gave back all yesterday’s gains and then some overnight. Sliding crude oil prices were a factor, but the bulk of the move was due to a sudden shift in sentiment, which became negative, although the reason isn’t apparent.
West Texas Intermediate (WTI) oil rallied from a low of $77.00/barrel yesterday to $79.84 just before Europe opened today. Then prices tumbled, falling to $76.24 in New York, due to widespread demand for U.S. dollars. The White House admitted that President Biden and Chinese President Xi discussed releasing crude from Strategic Petroleum reserves, which weighed on prices.
The Canadian dollar will not get any support from September retail sales, which are expected to have declined 1.7% m/m.
The U.S. dollar traded with a slight softening bias in Asia, but that changed when Europe opened.
The Euro area has been experiencing rising numbers of new COVID-19 cases and a 5% increase in coronavirus-related deaths in the past week. Government officials reacted, imposing new, restrictive COVID-19 measures in major regions of Europe.
Germany said it is banning unvaccinated people from public places. Austria went a step further and banned the unvaccinated from leaving home. Sweden is implementing a health pass, and the Czech Republic banned unvaccinated people from all public events.
Traders reacted and bought U.S. dollars across the board, except against the Japanese yen. The Canadian dollar was collateral damage.
Global markets are unsettled because President Biden may announce the fate of Fed Chair Jerome Powell this weekend. Analysts suggest that there is a 50% chance that Powell, a Republican, will be replaced by Democrat Lael Brainard. Both are considered doves, but markets hate uncertainty.
EUR/USD plunged to $1.1268 from $1.1372 after prices failed to rally above $1.1400, in a move exacerbated by more dovish comments from European Central Bank President Christine Lagarde. She stressed that "premature tightening" would be an unnecessary headwind for an economy already suffering from supply chain issues. Eurozone and German data were ignored.
Traders are already looking ahead to next week. Americans will be focused on Thanksgiving holidays with economic data relegated to the back seat. The minutes from the November 3 Federal Open Market Committee meeting are to be released Wednesday with analysts eager to read about tapering discussions.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
