The Canadian dollar rallied again, thanks to another surge in oil prices. West Texas Intermediate (WTI) oil jumped to $81.11 in early New York trading, an 8.1% increase since Thursday. Oil prices continue to be underpinned by rising demand as global economies emerge from the coronavirus pandemic and reluctance on the part of the Organization of the Petroleum Exporting Countries to increase production to pre-pandemic levels ahead of its previously announced schedule.
China is a major factor behind the surge in prices due to an energy shortage that led to Beijing telling state-owned energy companies to secure winter supplies “at any cost.” The urgency was exacerbated on the weekend due to flooding in China’s biggest coal producing province.
The Canadian dollar continues to benefit from Friday’s contrasting U.S. and Canadian employment reports. U.S. non-farm employment rose 194,000 in September, well below forecasts for an increase of 500,000 jobs. Canada added 157,100 jobs, well above expectations for a 60,000-job gain.
More importantly, the Canadian employment result fueled speculation that the Bank of Canada’s October 27 monetary policy statement may be on the hawkish side and suggest an earlier than expected rate hike.
USD/CAD extended its October slide, falling from $1.2735 on October 1 to $1.2453 overnight, a 2.2% decline. The currency pair may have further to fall with a move below support in the $1.2400-20 area suggests a retest of $1.2000 support.
The major Asia equity indexes closed deep in the red, spooked by Chinese developments and concerns about soaring energy prices boosting inflation and forcing central banks to raise rates. European bourses are in negative territory but attempting to recoup losses while S&P 500 futures turned positive in early New York trading. Oil and gold prices squeezed out small gains while U.S. 10-year Treasury yields, at 1.600% are just below their overnight peak of 1.628%.
EUR/USD is at the bottom end of its Monday-Tuesday range of $1.1547-$1.1586 range. German ZEW and Eurozone Survey reports were weaker than expected, due to supply chain issues. EUR/USD technicals are negative below $1.1630
GBP/USD traded in a $1.3570- $1.3672 range with prices underpinned by higher U.K. yields and forecasts for a rate hike as early as December. The GBP/USD technicals are bullish above $1.3550.
USD/JPY extended Friday’s gains reaching 113.48 overnight due to the U.S. 10-year Treasury yield rising to 1.628%
AUD/USD and NZD/USD tracked commodity price gains higher with AUD/USD supported by lockdown restrictions being removed in New South Wales.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians