Oil sprung a leak and USDCAD tested the top of its recent range. WTI traded sideways overnight and opened in New York at $44.05. It immediately fell off a cliff and hit $42.90/b. Traders are concerned about rising global production despite Opec’s production cuts. The outlook could really turn nasty if prices fall below $42.30/b.
The drop in WTI lifted USDCAD from 1.3210 to 1.3282. FX traders are continuing to weigh the impact of a newly hawkish Bank of Canada and the prospect of a Q3 rate hike against weak oil prices. So far, it appears the interest rate concerns are more dominate.
Interest rates were the story in the UK, specifically, Bank of England Governor Mark Carney’s assertion that it was too soon for a rate hike. He said in a speech that” From my perspective, given the mixed signals on consumer spending and business investment, and given the still subdued domestic inflationary pressures, in particular anaemic wage growth, now is not yet the time to begin that adjustment”
On the other hand, the US Fed’s two rates hikes in 2017 and the prospect of at least one more combined with weak oil prices have reinforced the USDCAD floor in the 1.3140-60 zone. Direction will become clearer on Wednesday and Thursday with the release of Retail Sales and CPI.
Sterling tanked, dropping from 1.2756 to 1.2644 New York trading.
EURUSD traded in a narrow 1.1141-1.1164 range torn between yesterday’s hawkish Dudley comments and the longer-term prospect of ECB tightening. That range is still intact in New York.
In Asia, USDJPY held on to yesterday’s gains derived from a hawkish outlook by New York Fed President Dudley. USDJPY opened in New York at the bottom of its 11.52-111.78 range.
AUDUSD traded lower early, in Asia but bounced following the release of the RBA minutes. The RBA expressed concern around labour and housing markets. AUDUSD bounced from 0.7586 to 0.7622. It opened in New York at 0.7616.
NZDUSD rallied in concert with Aussie, rising from 0.7221 to 0.7265.
There isn’t any data of note on tap today, leaving oil prices and equity markets to dictate FX direction.
USDCAD Technical outlook:
The USDCAD technicals are unchanged. USDCAD is in a downtrend while prices are trading below 1.3460. Prices are consolidating in a 1.3165-1.3305 range after breaking support in the 1.3340-60 area. A move below the 1.3140-65 area opens the door to further losses to 1.2965 while a break above 1.3460 would negate the downtrend. For today USDCAD support is at 1.3205 and 1.3180. Resistance is at 1.3280 and 1.33010
Today’s Range 1.3205-1.3285
Chart: USDCAD 30 minute