Home Daily Commentaries Bank of Canada remains cautious as Canadian household debt widens.

Bank of Canada remains cautious as Canadian household debt widens.

Daily Currency Update

In a speech, yesterday Bank of Canada Governor Stephen Poloz delivered a message on Canadian household debt. The takeaway is that the Bank will be monitoring the size of the debt and will take this into a count on future interest rate hikes. The Central Bank is also cognizant of various factors in the economy such as NAFTA, US Trading Policy, and competition which are keeping interest rates low now. Poloz said these factors would fade over time and the need for continued monetary stimulus will diminish, and the policy rate will naturally rise.

No Canadian economic data today, therefore, market participants will have to look to Trade Balance figures out tomorrow for directions of which way to trade the loonie. The Canadian dollar will buy and sell on demand today, and we expect the current consolidated range in the USDCAD of 1.2820 - 1.2903 to hold in the short term.

Key Movers

It is policy setting day in the US today, with the Federal Open Market Committee of the Federal Reserve expected to leave interest rates unchanged. A policy statement and announcement is scheduled for 2 p.m. today.

US Trade Representative Robert Lighthizer said before he left on a trade trip to China as saying he would like to see a North American Free Trade Agreement reached by the end of this month. The negotiations between Mexico, Canada, and the US have been going on for over eight months now. An agreement reach still needs to be passed through US law therefore beyond this would run into congressional elections in November.

ADP Non-farm employment change and crude oil inventories are this morning's US economic releases today. ADP is expected at 200k while crude oil inventories are estimated to be lower at 1.0M from last week's 2.2M. West Texas Intermediate sits currently trades at 67.45 in the middle of its daily range.

The EUR/USD closed below its 200-day moving average and essential support level of 1.20, as USD strength continued against almost all other currencies. We expect the 1.20 handle to hold heading into the FOMC interest rate announcement today. The pair is now flat on the year and the next few months could be challenging as it seems the European Central Bank, is in no hurry to discuss the end of their Quantitative Easing program, which doesn’t bode well for the Euro’s near-term view.

GBP/USD took another leg lower yesterday as weak manufacturing data indicated the economy’s poor showing in the first quarter might have split over to Q2. The Markit/CIPS Manufacturing PMI for April came in at 53.9 its worst reading since December 2016 with the report highlighting that inflationary pressures are starting to wane. With a slowing economy and inflation falling faster than expected according to recent CPI numbers the pound has tanked against the dollar dropping around seven cents since April 17th.

Today UK Construction PMI release higher than expectation, and the GBP gain backed some lost ground from yesterday. USD/GBP moved back above the 1.3600 handle, while the GBPCAD headed back above 1.7500.

Aligned to expectations, the Reserve Bank of Australia left interest rates on hold yesterday at a record low of 1.5 percent. With supporting commentary offering up very little new insight, policymakers re-confirmed the view that any shift towards tighter monetary settings would be gradual, allowing labor markets and inflation to return to target.

While the overall impact on the Australian dollar was initially limited in the aftermath, the domestic unit plummeted during overnight trade, hitting fresh lows for the year versus the world’s reserve currency. Having earlier traded to a 24 hour high of 0.7546, resistance at the 75 US Cents level was comfortably broken down with the Aussie eventually settling at levels closer to the 0.7490 mark, a rate in line with this morning’s open.

In what’s been a period dominated by strong demand for the US dollar, investors have continued to line up during the early parts of this week amid comments in particular from the Trump administration which triggered renewed hope that the North American Free Trade Agreement could be renegotiated.

The theme of this week continues to be the strength of the US Dollar and shows no signs of easing as we reach critical support levels for the New Zealand Dollar. Opening Tuesday morning already under pressure at 0.7040, the Kiwi maintained a very tight range throughout the domestic session. The majority of downside movement on the NZD/USD currency cross occurred in the North American session seeing dips in the 69 US cent range for the first time this year.

Some support was given to the local unit by a higher than expected Employment Change reading for the first quarter showing a rise of 0.6%. NZD/USD is just above the 0.7000 and CAD/NZD holds the 1.11 handle.

Expected Ranges

  • USD/CAD: 1.2779 - 1.2903 ▼
  • CAD/EUR: 0.6468 - 0.6515 ▲
  • CAD/GBP: 0.5698 - 0.5730 ▲
  • CAD/AUD: 1.0370 - 1.0425 ▼
  • CAD/NZD: 1.1084 - 1.1108 ▼