USD/CAD - Canadian Dollar NOT Getting High

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Marijuana may be legal in Canada starting today, but the Canadian dollar isn’t getting high. It is currently trading in Toronto above the overnight peak after being fairly quiet in Asia and European trading.

Yesterday, Wall Street closed after posting the best gains since February. That gave the Asia session a risk-seeking bias, and Asia equities followed U.S. indices higher. That sentiment didn’t carry forward into Europe. Disappointing euro-zone inflation data undermined EUR/USD. The drop in the single currency from $1.1579 to $1.1532 in Toronto trading this morning dragged the other G-10 majors lower as well.

The British pound is under pressure and so is U.K. Prime Minister Theresa May. Reuters reported that European Union officials told her to get support for the Brexit deal that is on the table or be cut loose in March, without one. E.U. Summit Chair Donald Tusk said the risk of a "no-deal" Brexit was greater than ever. GBP/USD was sold when U.K. inflation data missed forecasts. September Consumer Price Index rose 2.4%, well below the 2.8% y/y forecast. Core inflation at 1.9% y/y was below August’s 2.1% result.

FX markets are biding their time until the release of the U.S. Federal Open Market Committee minutes from the September 26 meeting. The Fed raised interest rates by 0.25%, making the new Fed funds range 2.0-2.25%. The move was well-telegraphed and almost universally expected. The Fed dropped the phrase "the stance of monetary policy remains accommodative" which created a bit of a stir. Fed Chair Jerome Powell went to great lengths to explain that the removal of the phrase was just an edit. The term had outlived its useful life. He also noted that Fed monetary policy was still "accommodative" by pointing out the level of the Fed funds rate which was below the neutral rate. Economists and analysts will be poring over today’s minutes to discern if the Committee is more hawkish than previously thought.

Canadian dollar traders are looking ahead to the October 25 Bank of Canada policy meeting. The new United States Mexico Canada Agreement (USMCA) should improve the clarity around the Bank of Canada’s future outlook. A rate hike at this meeting is a foregone conclusion, so analysts are trying to predict if the BoC will be more aggressive in the face of firm inflation rates.

The Canadian dollar is not getting much benefit from rising oil prices, lately, but the cost of crude still affects the exchange rate. Rising oil prices risk derailing global growth, which is why President Trump has been asking Saudi Arabia to alleviate shortage concerns by increasing crude production. His request has fallen on deaf ears, giving rise to the revival of "NOPEC" legislation. According to Reuters, the legislation if passed could expose the Organization of the Petroleum Exporting Countries to U.S. anti-trust lawsuits.

Today’s U.S. economic reports include housing starts and building permits. Canada releases manufacturing shipments. Weaker-than-expected Canadian data would undermine the Canadian dollar.

Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians