The expectation of a rate increase this Wednesday by the BoC disappears after weak Canadian data.
Monday 4 March, 2019
Daily Currency UpdateThe Loonie had its “black Friday,” falling 1.3 percent against the US dollar in last Friday's trading session. When Statistics Canada released Q4 GDP numbers, it came in at 0.4 percent annualized versus an expected 1.0 percent. The anecdote was that the data was wrongly announced early on Statistics Canada’s website, giving some market participants an early advantage on the release and adding to the initial bearish sentiment. One hour after, the manufacturing PMI data was released and came in at 52.6 when the previous one was 53.0, which added more negative sentiment against the Canadian dollar. On top of that, one hour later, the price of “black gold,” Canada’s most important export commodity, plunged 2.6 percent in a few minutes.
The Bank of Canada might not move its interest rate this week, after the negative data released last Friday. Furthermore, the Loonie might continue to be under pressure if crude oil doesn’t keep going higher or if President Trump goes back on Twitter to oppose high oil prices.
Technically speaking, as mention during the last week, the technical uptrend is still intact. The USD/CAD continued rising in overnight trading session, touching an intraday resistance of 1.3325. If that level is broken during this week, it might visit the 1.3375 level. However, given that fast move to the upside, it might also test lower levels such as 1.3280 and even 1.3250 levels during the week. For now, crude oil is rising over 1 percent, which means that the USD/CAD might have a retracement in the next few hours or days.
Key MoversThe US and China are in the final stage of completing a trade deal, with Beijing offering to lower tariffs and other restrictions on American farm, chemical, auto, and other products and Washington considering removing most, if not all, sanctions levied against Chinese products since last year. According to the Wall Street Journal, the agreement is taking shape following February’s talks in Washington. Auditing the implementation of the deal remains a sticking point, with Washington seeking compliance before tariffs are fully reversed.
The US dollar index gains 0.16 percent at the moment, although President Donald Trump renewed his attacks on Federal Reserve Chair Jerome Powell at a speech, in which he accused Powell of being someone who liked raising rates. Trump tweeted that the US dollar is too strong and referred to Powell as, “…a gentleman that likes a very strong dollar.” The economy is doing well, despite the actions of the central bank, Trump said.
The US dollar index has continued to rise quietly from February 27th to today (around 1 percent). Today it is hitting a technical resistance; the question is if it might be able to take out the latest highs from February 15th. A good proxy will be to see the EUR/USD pair, which is composed of more than 50 percent of the US dollar index, and as long as the EUR/USD doesn't go above the 1.1400 handle, the US dollar might continue gaining strength.
Thursday sees the latest interest rate decision from the European Central Bank with no change in policy all but guaranteed from bank chief, Mario Draghi. The main area of interest will be comments from the Draghi over the recent slowdown in output from the bloc with recent figures showing Germany narrowly avoided a recession at the end of last year. Although a resumption of QE is unlikely from the bank, there is a feeling we may see a reintroduction of its targeted longer-term refinancing operation with cheap loans available to the EZs lenders. Ahead of the ECB, there is little data to digest so the usual ongoing issues of Brexit and US/China trade will likely affect the single currency the most. The EUR/USD pair is down to 1.1343 or a decrease of 0.18 percent.
The GBP/USD pair had opened higher in Asia, however at this moment as we get nearer to a series of crucial parliamentary votes on Brexit due next week, the British Pound is trading flattish around 1.3211. A softening of language from the pro-Brexit European Research Group of Tory MPs is likely the main reason Sterling had opened higher. The group which includes high profile Brexiteer, Jacob Rees-Mogg has issued three tests that it wants PM, Theresa May to pass to win its support. The main sticking point is the Irish Backstop, with the ERG maintaining it wants a time limit to the arrangement regardless of how this is achieved. The parliamentary votes are scheduled for next Tuesday, Wednesday and Thursday with MPs hoping for some breakthrough between the UK and EU this week.
With Trump taking a swipe at the Fed and a strong dollar and reports of a trade deal between the US and China getting closer, the Aussie started trading higher in the Asian session, with the AUD/USD pair breaking through the 0.7100 handle; however, it has retraced on the back of some softer than expected domestic data. Quarterly Company Operating Profits undershot by some distance showing 0.8 percent growth far lower than the 3.1 percent predicted. It’s a busy docket this week from Australia with tonight seeing the latest interest rate decision from the Reserve Bank of Australia. Tomorrow night is the latest GDP reading with Retail Sales numbers due Wednesday night. The AUD/USD pair is trading at 0.7088, a 0.17 percent at the moment of this writing.
The Kiwi popped higher this morning mirroring the Aussie’s rise; however, the soft company profit data from across the Tasman Sea dragged down the NZD, erasing virtually all of the gains seen during the Asian session. There is little of note happening all week from NZ, so US/China trade will likely dictate the local dollar’s value. The NZD/USD pair is trading 0.6810, a 0.22 percent increase at the time of this writing.
- USD/CAD: 1.3260 - 1.3325 ▲
- CAD/EUR: 0.6600 - 0.6660 ▲
- CAD/GBP: 0.5659 - 0.5750 ▲
- CAD/AUD: 1.0555 - 1.0647 ▲
- CAD/NZD: 1.0990 - 1.1147 ▼