The US dollar is flat against the Canadian dollar on Tuesday morning after another dismal day on global stock markets that caused the biggest two-day decline on Wall street in two years. Dollar gains as a haven are being limited by rising bets the Federal Reserve will be forced to cut interest rates after data showed falling US consumer confidence.
USD/CAD was higher by 4 pips (+0.03%) to 1.3288 with a daily range of 1.327 to 1.329 as of 9.30am GMT.
USD/CAD remains rangebound beneath 1.33. Weekly gains in the exchange rate stand at +0.48%.
The Canadian dollar
The price action this week seems to show some speculative interest coming back to the Canadian dollar as one of the stronger commodity-currencies. Although the dollar is up this week against the Canadian dollar, gains have been capped near the 1.33 level. The Commitment of Traders (COT) report released on Friday showed an increase in long-Canadian dollar bets.
The Australian dollar is heavily exposed to China but Canada’s exports mostly go to the United States. Assuming that China is worse hit than the United States by the coronavirus, the Canadian dollar stands to outperform. The outperformance rests on a more stable oil price. Now WTI crude oil has just dipped below key support at $50 per barrel which could open more downside to oil prices and expose the Canadian dollar to more short-term weakness.
A shock fall in US consumer confidence (an indicator closely watched by the President of the United states to monitor his standing in t the run up to the November Presidential election) knocked the greenback off its perch on Tuesday. The downbeat implications for the US economy of lower consumption saw the yield on 10-year Treasuries fall to a record low. Lower yields in the United States versus Canada make the Canadian dollar relatively more attractive for carry trades. A carry trade is when a low-yielding currency is borrowed and used to buy a high yielding currency in order to earn the different in yields.