USD/CAD Loonie Recovers But Still Far From Pre-Brexit Levels

The Canadian dollar advanced against the U.S. dollar as Brexit fears that triggered a sell off have abated. There has been little in way of economic indicators to drive the market and official comments from policy makers has been limited and obtuse as usual. One thing is clear the potential exit by the U.K. from the European Union is not to be a quickie divorce. There is still a high number of conversations between E.U. leaders and a political mess back in the U.K. to deal with. The Canadian dollar got a boost from crude and gold with both rising against the USD.

The American dollar lost some of its appeal as a safe haven as investors returned to the market after the historic vote on June 24. Lower U.S. inventories boosted crude and the remaining uncertainty regarding the global economy after a Brexit will continue to keep gold bid.

The return of risk appetite to global markets eased the downward pressure on the loonie. Fundamentals are back on the table and Thursday June 30 will see the release of the monthly Canadian gross domestic product figures. The GDP is expected to have grown 0.1 percent and could push the CAD higher after the lower than expected 0.2 contraction last month. There are still concerns about the ability of the economy to grow in such adverse conditions. The impact of the Alberta wildfires on top of a climate of uncertainty trigged by the Brexit vote will keep the Bank of Canada (BoC) on alert. The impact of the governments fiscal stimulus spending is still a quarter away from showing any results and another market shock might be all it takes for the BoC to regain its proactive stance.

The USD/CAD lost 0.52 percent in the least 24 hours. The pair is trading at 1.2985. The Loonie benefited from Brexit fears subsiding as the road ahead for a possible UK exit will be a long one. The Canadian dollar got support from commodities. Oil prices rose more than 3 percent and Gold eked out a 0.74 percent gain despite fewer investors seeking the safety of the yellow metal. Uncertainties remains and that will continue to keep gold bid, but for the time being and with little economic data the market has restored value to those assets hit by the post Brexit shock.

West Texas gained 3.66 percent in the last 24 hours. The price of crude is trading at $49.10. Lower market anxiety and a higher than expected drawdown on U.S. inventories pushed energy prices back to pre-Brexit levels. Oil output continues its breakneck pace, with localized disruptions only offering stability but signs of increased demand are appearing. U.S inventories fell by 4.1 million barrels last week almost double the expected drawdown. Lower crude imports and higher demand made for a speedy recovery of oil prices as the USD lost its appeal as a safe haven.

Stock markets around he globe bounced back on Wednesday as political uncertainty in Britain remains, but that also means there will not be a speedy exit from the European Union which was the biggest fear. The UK stock market gained 2.64 percent in the last 24 hours as the market will continue to trade on limited economic releases and ahead of the first week of July that is action packed from start to finish, but first the U.K. will release its current account, Canada its monthly GDP and manufacturing surveys in China, England and the U.S.

Market events to watch this week:

Thursday, June 30
4:30am GBP Current Account
8:30am CAD GDP m/m
8:30am USD Unemployment Claims
9:00pm CNY Manufacturing PMI
9:45pm CNY Caixin Manufacturing PMI
Friday, July 1
4:30am GBP Manufacturing PMI
10:00am USD ISM Manufacturing PMI

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza