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USD / CAD - Canadian dollar sinks under broad USD demand.

- Moody’s downgrades China to A! negative.

- RBA delivers dovish hold.

- US dollar rallies across the board.

USDCAD: open 1.3561-65, overnight range 1.3531-1.3579, close 1.3538, WTI $73.42, Gold, $2025.69

The Canadian dollar is consolidating its recent gains, but it is well below its best level. The positive sentiment from last Friday’s Canadian employment data has faded, and the focus has shifted to developments south of the border and China.

The Canadian dollar is also undermined by the steep drop in oil prices which has occurred since last Thursday, and despite OPEC and friends announcing deeper production cuts beginning January 2024. The cartel said voluntary production cuts would be 2.3 million barrels/day, an increase of 900,000 bpd. Saudi Arabia and Russia had already agreed to 1.3 million bpd in cuts. Oil traders were nonplussed. They see soft global demand and rising non-OPEC production knocked WTI from $79.45/b last Thursday to $72.81/b today.

Moody’s downgraded China’s credit outlook from stable to negative. The ratings agency said that China’s worsening property crisis has encouraged the government to ramp up fiscal stimulus, which raised concerns about the country’s rising debt levels. Naturally, Chinese officials were “disappointed” with the decision. Nevertheless, the news was enough to add a layer of risk aversion sentiment into Asian trading.

EURUSD is near the bottom of its 1.0804-1.0848 range due in part to dovish comments from ECB Governing Council member Isabel Schnabel, suggesting that additional Eurozone rate hikes were unlikely. Traders did not react to Eurozone Services PMI or Producer Prices data.

GBPUSD is directionless in a 1.2607-1.2647 range, although the downside may be limited due to divergent Bank of England and ECB interest rate policies. The ECB is expected to cut rates sooner than the BoE, which undermines EURGBP and boosts GBPUSD.

USDJPY seesawed in a 146.68-147.38 range as safe-haven demand for yen after the Moody’s downgrade of China was offset by news that Tokyo inflation fell to 2.3% from 2.7% in October.

AUDUSD traded poorly in a 0.6656-0.6627 band after long AUD positions were trashed following the Reserve Bank of Australia monetary policy decision. They left rates unchanged at 4.35%, which was widely expected but surprised analysts when they watered down the tightening bias evident in the previous statement. The results encouraged more analysts to conclude that Australian rates have peaked.

Traders are looking ahead to today’s US ISM Services PMI and the JOLTS job openings data to see if it supports Fed Chair Jerome Powell’s comments from Friday, that suggested US rates could still rise.