USD/CAD - Broad U.S. Dollar Gains Swamp Canadian Dollar

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The U.S. dollar climbed yesterday, and that rising tide swamped the Canadian dollar. The domestic currency rallied yesterday morning but could not chop through USD/CAD support at the 200-day moving average level of $1.3150. A wave of U.S. dollar buying against the major G-10 currencies occurred despite a series of weak U.S. economic data reports.

Canadian dollar sellers may have been motivated to book some profits after this week’s 1.0% rally, compared to last Friday’s closing rate ahead of Bank of Canada Governor Stephen Poloz’s speech in Montreal, and this morning’s Canadian Retail Sales report. The BoC Governor repeated his earlier message for the need for higher rates over time as they are still below the BoC’s measure of the “neutral. He reminded markets that the BoC is concerned about the impact of higher rates on highly indebted Canadians and weak business investment.

The Canadian dollar is not likely to get any support from the December Retail Sales report. It is expected to be weak, albeit not as weak as the November data. Part of the weakness is due to lower gasoline prices, which may lead to a negative report being discounted. However, Governor Poloz’s remarks are a lot fresher than two-month-old data, meaning traders will limit Canadian dollar gains on the back of tame BoC monetary policy.

The latest round of U.S./China trade talks winds up today. Various news sources report that the two sides are drafting "memorandums of understanding" covering issues such as forced technology transfers, property rights currency and agriculture. The progress is such that President Trump plans to meet with China Vice Premier Liu He today. If so, Trump’s usual hyperbole about the deal’s "awesomeness" could trigger demand for so-called riskier assets and lift the Canadian dollar.

China was also the focus in Asia trading. Australia Prime Minister Scott Morrison downplayed China’s coal ban as not something out of the ordinary. Chinese officials agree saying the ban was merely a delay due to environmental and safety reasons. That sentiment helped to underpin the Australian dollar. On the other side of the Tasman Sea, NZD/USD traders were busy selling that currency.

Traders got spooked after Reserve Bank of New Zealand Deputy Governor Geoff Bascand warned that the Overnight Cash Rate (OCR) could be cut if proposed changes to banks capital requirements were adopted. NZD/USD dropped from $0.6815 to $0.6760 before traders realized the comments were just an opinion and not a policy change. Prices recovered all the losses by the New York open. The Canadian dollar was merely a spectator to the antipodean currency moves.

There isn’t any top tier U.S. data available today leaving traders to track Wall Street moves.

Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
Learn how KnightsbridgeFX can help you save up to 2% when buying or selling US dollars compared to your Canadian bank’s rates – click here to compare bank rates