The Canadian dollar is trading with a modestly bullish bias on the last trading day of October. The price action is being dictated by events and data from other regions, with potential Canadian-dollar demand due to portfolio rebalancing flows limiting the downside.
The Canadian dollar continues to benefit from Wednesday’s Bank of Canada (BoC) monetary policy decision. Governor Tiff Macklem said the BoC may raise interest rates a lot sooner than he had previously stated, citing concerns about inflation. However, it is not a sure thing. Macklem said the outlook is highly uncertain.
Canada’s August Gross Domestic Product is expected to rise 0.7% m/m thanks to the easing of COVID-19 restrictions in the summer. A higher than expected result combined with possible month-end demand for the currency may give the Canadian dollar an added boost.
The Reserve Bank of Australia has overshadowed the BoC shift. The RBA declined to buy April 2024, 0.10% bonds for the second consecutive day, which convinced traders the central bank would announce the end of its yield curve control (YCC) policy at Tuesday’s monetary policy meeting. AUDUSD consolidated gains in a $0.7526-$0.7554 range.
Firm oil prices underpin the Canadian dollar. West Texas Intermediate (WTI) shrugged off yesterday’s losses and climbed from $80.58 to $83.26 overnight. Prices are supported as traders expect the Organization of the Petroleum Exporting Countries to limit the November production increase to the previously announced 400,000 barrels/day. Supply constraints may ease if the Iran nuclear talks result in an agreement and Iran resumes oil exports.
EUR/USD rallied from $1.1578 to $1.1692 yesterday following the European Central Bank monetary policy statement and press conference. The ECB left interest rates and monetary policy unchanged. Even as other central banks begin normalizing monetary policy, the ECB is maintaining the status quo. President Christine Lagarde repeated that elevated inflation rates would return to the ECB target of 2.0% by the end of 2022.
Traders did not agree, and a 0.20 basis point increase is priced in for October 2022. That view received support today when data showed Euro area inflation surged 4.1% y/y in October, compared to 3.4%y/y in September.
GBP/USD is tracking EUR/USD moves but gains may be limited to the resumption of hostile Brexit rhetoric about fishing and the Northern Ireland border.
The U.S. economic calendar has personal income, Chicago Manufacturing PMI, and Michigan Consumer Sentiment.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
