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A gloomy market sentiment is pushing the Canadian dollar lower.

Tuesday 22 January, 2019

Daily Currency Update

A gloomy market sentiment overnight through to this morning is pushing the Canadian dollar lower after the International Monetary Fund (IMF) issued its World Economic Outlook on Monday. In this environment, buying safe-haven currencies (such as the Japanese Yen, Swiss Franc or US dollar) and selling riskier assets rule the market (such as the Aussie dollar or Kiwi dollar). The USD/CAD increased (weaker Loonie) 0.34 percent to 1.3334 this morning compared to yesterday's closing rate, but it outperformed the Australian dollar and Kiwi dollar. The IMF left its global growth forecast unchanged from their October update, but it downgraded Euro-zone growth. They blamed a slowdown in Germany due to new automobile fuel emission standards and sovereign and financial risks in Italy for the reductions. On the release side, the Loonie was further undermined when the wholesale sales and manufacturing sales data came in weaker than expected this morning.

Key Movers

The US dollar is acting as a haven this morning, rising 0.10 percent and ignoring the lower growth expectations of the US economy. The International Monetary Fund (IMF) issued its World Economic Outlook on Monday, and the optimism that was in the air in 2018 has given way to a more inescapable sense of gloom. The global economy is projected by many economists to slow in 2019 to closer to 2 percent annual growth. From now on, global growth will depend on critical decisions by different players in the global economy, especially including U.S. President Donald Trump and Chinese President Xi Jinping. Given that there was a holiday in the U.S yesterday, market participants are only keeping their eyes on U.S. and China talks to resolve U.S. complaints that China competes unfairly. China has been defiant, but its slowing growth numbers are putting pressure on Mr. Xi to compromise.
It is a quiet start to the week for the Eurozone with little economic data due until Thursday’s monthly batch of PMI numbers and the European Central Bank’s interest rate decision and press conference. Markets will be hoping for an uptick in all the major PMIs after last month’s poor showing. No change in policy from the ECB is almost guaranteed. Estimations on when the bank will finally hike rates mostly straddle H2 2019 and H1 2020. The EUR/USD pair is trading at 1.1342 this morning, a 0.18 percent decrease.
The GBP/USD pair is trading at 1.2910, an increase of 0.24 percent this morning. Markets and the Pound breathed a sigh of relief almost last night as the Prime Minister Theresa May survived the vote of no confidence brought against her government by opposition leader Jeremy Corbyn. In many ways, the events last night highlight many interesting points. Firstly, the Pound does not want a general election. For the last two or so years, the discourse around Pound strength has been around a ‘soft’ Brexit because it brings consistency and certainty. The same can be said for the current government, and clearly, investors do not want the added uncertainty of a general election. Secondly, from the outset, it seems that the result of the vote was highly anticipated and while the margin was only 19, all MPs voted along party lines, and May’s victory was all but inevitable after the Dup and influential ERG backed the PM. This begs one final point, why did the leader of the opposition declare bring forward the motion of no confidence if the numbers were so stacked. Moving forward, the Prime Minister now has until Monday to knock out a plan B.
The AUD/USD pair is trading at 0.7155 this morning, a 0.16 decrease. The Aussie dollar looks like it will end the week on the back foot as Westpac’s Consumer Confidence survey fell by 4.8 percent in at the start of the year. Indeed the survey came in below the magic 100 level for the first time since November 2017, and the ‘cautious optimism’ that went through 2018 seems to have evaporated at the turn of the year.
The New Zealand dollar is also struggling overnight with real estate figures disappointing reminding investors of the strain in the global economy at the moment, which is directly impacting New Zealand and the Kiwi. Next week CPI figures for Q4 will be the highlight for the New Zealand dollar. The NZD/USD pair is trading at 0.6729, a 0.70 percent decrease.

Expected Ranges

  • USD/CAD: 1.3250 - 1.3350 ▼
  • CAD/EUR: 0.6595 - 0.6641 ▲
  • CAD/GBP: 0.5785 - 0.5900 ▼
  • CAD/AUD: 1.0444 - 1.0555 ▼
  • CAD/NZD: 1.1025 - 1.1200 ▼