USD/CAD - Trick or Treat for Dollar Data?

Judging by the price action in foreign exchange markets, investors might be forgiven for thinking it’s a public holiday in Canada. Over the last 36 hours, the U.S.-Canada dollar pairing has been trapped in a range from $1.2809 to $1.2849; the quietest period in many weeks. Canada is one of the very few countries to release gross domestic product figures on a monthly basis (the official statisticians in Australia and New Zealand can’t even calculate Consumer Price Index monthly!) and though it’s expected that the latest figures will show only a slight moderation in the annual rate of growth to 3.6% from 3.8%, much of this growth came earlier in the period before the Bank of Canada moved to twice hike interest rates.

Monthly GDP in July was unchanged and the August numbers out this morning are expected to be up just 0.1% m/m. After yesterday’s consumer confidence numbers showed the sub-index tied to perceptions about the economy and housing had the lowest month-end reading since January, investors shouldn’t be holding their breath for a pickup in Canadian GDP any time soon. For the day ahead, last Friday’s high of $1.2906 will be the level to watch in case of any further disappointment in the economic data.

USD/CAD expected range: $1.2810 – $1.2910

The U.S. stock market had a very minor wobble Monday. Most of the pressure was felt on small cap stocks, whilst the S+P 500 fell eight points and the Dow Jones Industrial Average lost 85. Lower stocks, lower bond yields and a somewhat weaker U.S. dollar index (-0.3% yesterday) might not endure until the end of a week which sees major economic data releases, but there’s the added complication of the Trump-Russia story which investors are now struggling to incorporate into their thinking.

It is a fiendishly difficult narrative to follow and much of the reporting is as biased as the political actors themselves. It may or may not develop into a more important theme for financial markets but in the very short-term traders are faced with "Trump-Russia" headlines and the fact of lower equity markets and it is very tempting and easy to link the two. Overnight and through the London morning the U.S. dollar has stabilized with the dollar index against a basket of currencies up around 0.15% at 94.35. Last Friday’s high of $94.89 still looks out of reach until investors see the Institute for Supply Management and payroll numbers later this week but if consumer confidence doesn’t spook the market, then some consolidation today looks likely.

CAD/EUR expected range: $0.6665 – $0.6725

It has been a very busy morning for European economic data kicking off with a very solid 0.5% q/q increase in French GDP in Q3. The result was in line with consensus forecasts but upward revisions to the second quarter of this year and the fourth quarter of last year - both by 0.1 percentage point to 0.6% - helped lift the y/y growth rate to 2.2%; its fastest pace since 2011.

For the euro-zone as a whole, Q3 GDP was a 10th higher than expectations at 0.6% q/q (or 2.4% annualized as our American friends would describe it) whilst the second quarter was revised up by a 10th from 0.6% to 0.7%. Capping off a very encouraging day for economic news, unemployment in the euro-zone fell below 9% for the first time since the beginning of 2009 and is now down more than three percentage points from its 12.1% peak in early 2013.

The euro hasn’t received much of a lift yet from these numbers – perhaps because headline and core CPI were both a both touch weaker than forecast (a development we flagged up in one of our earlier commentaries). Nevertheless, strong growth and low inflation is rarely a bad mix for the currency and after its post-European Central Bank selloff on Thursday, there should now be some near-term scope for the euro to rally a little against both the U.S. dollar and Canadian dollar.

CAD/GBP expected range: $0.5885 – $0.5935

After a very strong day which saw it leading the global FX pack by quite some way, the pound sterling has taken something of a breather through the Asia-Pacific and London morning sessions. The sterling-U.S.-dollar pairing broke marginally through Monday’s high of $1.3213 but could advance only another four basis points to a best level of 1.3217. The pound-Canadian-dollar pairing has performed somewhat better moving to a high of $1.6981 which is just a few pips shy of the multi-month high of $1.6984 reached last Thursday.

Two of the main private sector gauges of confidence were released overnight in the U.K.: GfK’s consumer confidence and the Lloyd's Bank business barometer. The first of these showed a slight deterioration to -10 after a couple of months of very modest improvement whilst the latter improved from +23 to +26 and is now around its average level for much of 2017. There is some encouragement that falling real wages and seemingly interminable Brexit negotiations have not had a more negative effect on individuals or companies but it would be something of a stretch to describe these numbers as encouraging. The trends in both series remain downwards and consumer confidence is actually lower than in the immediate aftermath of the referendum in Summer 2016. We’re left to wonder how much scope there is for pound sterling to advance further as a 25-basis-point rate hike from the Bank of England on Thursday looks very much a done deal.


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