Canadian Dollar Volatility at Historic Lows
Monday 25 November, 2019
Daily Currency UpdateCAD - Canadian DollarMinimal data to report on with only medium-tier data to report on this week for the Canadian dollar. Today we have Canadian Wholesale Sales figures and the Thursday Current Account followed by monthly GDP and Raw Material Price Index Numbers on Friday. Canadian dollar participants look to next week's Bank of Canada rate decision on Wednesday, December 3rd. Comments from Governor Poloz last week heard him say, "the Canadian economy is in good shape, and the monetary policy conditions were about right." Market Participants read these comments as no cuts on interest rates next week and that it may be the first quarter of 2020 before the central bank moves on rates.Canadian dollar falls against its US counterpart with support is seen at 1.3270 the 200-day moving average and resistance at 1.3333 the 0.75 cents US level, the USDCAD pair currently changes hands at the psychological level of 1.3300. One-month risk reversals in USDCAD posted the most significant net gain since August as traders are now turning more bearish on the Canadian dollar. Dovish comments last week from Bank of Canada's Senior Deputy Governor Carolyn Wilkins last Monday implied probability for a rate cut on January 22nd BoC meeting climbed from 43% to 54% at the start of the week and then fell below 40% by Friday after Poloz's comments mid-week. With the Loonie volatility near historically low levels, traders may be tempted to opt for cheap protection against unknown risks surrounding future Monetary policy.
Key MoversPrice action for USD this week will be hampered by Thursday Thanksgiving holiday and long weekend. While the back and forth between trade delegates drive direction, we could see some increased volatility in thin trading lines come to the end of the week, especially if key inflation data due Wednesday misses the mark. Watch for fluctuation in USD/JPY on the back of risk trends.Sterling remains beholden to the election and subsequent Brexit outcomes, finding support through the end of last week as Johnson’s conservative look further cement their lead in the polls. Opening this morning just below 1.29, we anticipate the GBP will fluctuate between 1.27 and 1.31 in the lead up to the December 12th election.The Euro could test the lower end of recent ranges this week, having missed on fundamental manufacturing PMI data last week. With little offered from the new ECB head Christine Lagarde in her maiden address. Market participants can only expect the ECB will maintain its current path of QE and accommodative monetary policy, as concerns over lackluster growth and stagnant inflation will require a persistent and ongoing stimulus. A break below the psychological 1.10 mark could signal a downturn and move toward 1.0950.
- USD/CAD: 1.3285 - 1.3315 ▲
- GBP/CAD: 1.7070 - 1.7145 ▲
- EUR/CAD: 1.4637 - 1.4663 ▲
- NZD/CAD: 0.8522 - 0.8545 ▲