Canadian Dollar Update June 5, 2019 – Canadian Dollar testing resistance

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USD/CAD Open: 1.3374-1.3375 Overnight Range: 1.3363-1.3406

The Canadian dollar was rangebound in overnight currency exchange markets. Oil is at $52.70 and gold is at $1,343. US markets are higher today.

The short-term USD/CAD technicals are neutral-bearish. For today, USD resistance is at 1.3412. Support is at 1.3343.

The Canadian dollar is testing a resistance area that has capped gains since April 30. The Canadian dollar is seeing renewed demand due to broad-based US dollar selling following yesterday’s comments by Federal Reserve Chair, Jerome Powell. Mr. Powell said the Fed is closely monitoring the implications around recent developments involving trade negotiations and their implications for the US economic outlook. He added, “as always, we will act as appropriate to sustain the expansion, with a strong labour market and inflation near our symmetric 2 percent objective”.

Financial markets interpreted this statement as a signal that the Fed is preparing to cut interest rates. It was just nine months ago that markets were fearing two, possibly three Fed rate hikes by the end of 2019. Mr. Powell admitted that uncertainty around trade negotiations caused concerns. Markets expect the Fed to cut interest rates twice in the next seven months. Mr. Powell’s signal sparked a huge rally on Wall Street, lifted US Treasury yields and underpinned the Canadian dollar.

It is not all sunshine and unicorns for the Canadian dollar. Domestic data has been reasonably supportive, but Canada is also suffering from the impact of US/China trade restrictions, according to Bank of Canada Senior Deputy Governor, Carolyn Wilkins. In a speech in Calgary last week, she noted that domestic inventories were rising. She noted that Canada was caught in the crossfire between China and the US. She also warned that if the disputes “were to worsen and become long lasting, the outlook would be quite different. Not only would we see weaker economic demand, but the supply side of the economy would also take a hit as companies deal with disruptions to their supply chains”.

Those concerns combined with fresh rate cuts from central banks in Australia, New Zealand alongside dovish outlooks from the European Central Bank have given rise to speculation the Bank of Canada could cut interest rates this year.

Those fears are reinforced by the dovish shift by the Fed and recent oil price weakness.

The escalation of China/US trade tensions raised fears of a global growth slowdown, which would more than offset OPEC production cuts. Also, OPEC is debating extending the current production cut levels past the end of June. Reportedly, Russia is one country that is against an extension.

The US dollar finished yesterday’s session with losses across the board and it extended those losses in overnight trading. Comments from RBNZ Assistant Governor Hawkesby underpinned NZDUSD while mixed economic reports supported EURUSD. GBPUSD was lifted by better than expected May Services PMI data.

Today’s US economic reports include ADP Employment and ISM non-manufacturing PMI. There isn’t any major Canadian data expected to be released today.

Today’s Suggested Range USD/CAD: 1.3320 – 1.3420

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