USD/CAD Canadian Dollar Lower on ECB Topsy Turvy Thursday

The Canadian dollar is lower on Thursday. The loonie is trading at 1.3217 after the European Central Bank (ECB) cut its benchmark rate and announced a relaunch of its QE program. The central bank will buy 20 billion euros a month of bonds in an effort to boost the eurozone economy. The Canadian dollar had a volatile day of trading at it was caught between trade optimism and lower rates, that boosted stock markets and in the other hand doubts about an interim US-China trade deal and a falling price of oil.

usdcad Canadian dollar graph, September 12, 2019

The Bank of Canada (BoC) held rates unchanged in September, but the rate differential and a strong jobs market did little for the loonie on Thursday. Risk aversion and appetite came in and out of the market with he final balance for the CAD was depreciation.

The US dollar was higher against the JPY, CAD and NZD out of the majors, but in a quick reversal of earlier trading was down against European pairs. The move was not seen as a win for the ECB, even though Mario Draghi went all in on the monetary policy toolkit available even as he is winding down his presidency. Christine Lagarde will take over in November with the herculean task to convince the market that whatever is left in the policy bag of tricks can boost growth.

Next week will be all about the Fed, with a 25 basis points at near 100% probability as it has been priced in by the market, but with huge question marks on how much will the central bank bend to the will of the US president and the market even as US indicators show a more robust picture.

Gold rose 0.25 percent on Thursday. The European Central Bank (ECB) as expected cut its benchmark rate, but in a bit of surprise it did announce the relaunch of its quantitive easing program. Global central banks continue to push rates lower, in the case of the ECB deeper into negative territory. Gold has gained as investors flock to it in times of uncertainty, and also as monetary policy is pushing for even lower rates across the globe.

A potential trade deal between the US and China stopped the gold rally earlier this week, but as close as a trade deal might be, there is still a lot of uncertainty on both sides reaching an agreement. The market has been here before, only for the two nations to launch new tariffs, so nothing is clear until more details emerge. Gold is trading just below the $1,500 but it rose up to $1,520 earlier in the session.

Oil prices were under pressure on Thursday. West Texas Intermediate fell 1.22 percent and Brent 0.70 percent. The market is weighing in between reports of lower global energy demand and pessimism on an interim trade deal against bigger than expected drawdowns in the United States.

West Texas Intermediate graph

The OPEC+ agreement to limit production has added price stability to crude, but it comes at a cost to producers. The group will discuss another extension when they meet in December, with comments from newly appointed Saudi Arabia energy minister pointing to the kingdom supporting keeping production levels low.

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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