USD/CAD - Dollar Firmer Following Data

Canadian Dollar (CAD)

Bank of Canada Governor Stephen Poloz is one of the more interesting and insightful Central Bank Governors around. Though it was suggested that the best way to forecast inflation in the short-term is to drive past a gasoline station and look at the price on the pump, his speech yesterday afternoon to the Montreal Council on Foreign Relations was a more scholarly affair. Poloz concluded a fascinating speech by noting, "The popular perception that inflation has become inexplicable has been greatly exaggerated. In part, this perception reflects a misunderstanding of the accuracy with which economists can predict inflation, and a misunderstanding of the precision with which central banks can control it. Fundamentally, we know how inflation works - the laws of supply and demand have not been repealed The bottom line is that inflation targeting has worked, through good times and bad, for more than 25 years. It continues to work today." Although there were no clear signals for the Canadian dollar in the speech, its pairing with the U.S. dollar has fallen steadily over the past 24 hours from yesterday’s $1.2802 high. It opened in London around $1.2760 and has been down to a low in the European morning of $1.2737. Data on Canadian housing starts and building permits are published locally this morning with consensus expectations of +211,000 and 1.0% m/m.

US Dollar (USD)

USD/CAD expected range: $1.2710 – $1.2830

Air Force One touched down in Beijing overnight to begin the third leg of President Trump’s five-nation Asia trip. In a reciprocal gesture for hosting Premier Xi at his Mar a Lago estate in Florida earlier this year, the two leaders and their wives enjoyed an opera performance and a tour of the Forbidden City. With the serious business part of Trump’s trip not until Thursday, the U.S. dollar index remains stuck in its now-familiar 94.40-94.85 range. It opened in London this morning almost exactly in the middle of this band at 94.62 and has slipped around one-tenth during the session to open in North America around 94.50. A December Federal Reserve rate hike still appears very much a done deal (the CME online calculator pins the probability of a 25-basis-point rise at 93%) and it would take either a huge external shock or a sudden sharp decline in the stock market to make investors rethink their views. Keep an eye on tax reform progress, as well as the president’s Asia trip for near-term clues on the U.S. dollar.

Euro (EUR)

CAD/EUR expected range: $0.6740 – $0.6820

Having spent almost the whole of Tuesday on a $1.15 handle, the euro opened in London this morning around $1.1588; almost five cents down from its early September high. In a session largely bereft of economic news (apart from Latvian Consumer Price Index and Portugese unemployment), it has just managed to claw its way back on to $1.16 though might struggle to advance much further. The technical picture continues to exert downward pressure on the currency pair. It is now below its 20-day moving average of $1.1688, the 50 day average of 1.1782 and the 100 day measure at 1.1787. In another bearish chart development, the 50-day average has also crossed down through the 100-day average.

In the very big picture, investors should look to the much slower 200-day average for support but unfortunately this does not come into play until they get all the way down to $1.1410. The ECB’s Sabine Lautenschlaeger yesterday said, "I would have liked to see a clear exit [from QE]". Tomorrow it is the turn of Bundesbank President Jens Weidmann to speak and analysts will again be looking for any differences of opinion between him and European Central Bank Chief Mario Draghi. For today, however, the euro’s fortunes are more probably driven by external events than any fresh domestic news.

Great British Pound

CAD/GBP expected range: $0.5950 – $0.6000

The British pound continues to react nervously to the very fragile political situation in the U.K.. Fortunately for Prime Minister Theresa May, the U.K. Parliament has just risen for a week’s holiday and she thus avoids the danger of once again coming off second-best to Opposition Leader Jeremy Corbyn in the weekly pantomime that is Prime Ministers’ Questions. Unfortunately, having suffered the resignation of her Defence Secretary last week, press reports say the international development secretary might now be forced out after revelations about unauthorized meetings while on holiday in Israel. It is reported in the U.K. media this morning that Mrs. May has cleared her diary of meetings for the rest of the day.

As Oscar Wilde might have put it, to lose one minister looks unfortunate, but to lose two begins to look like carelessness... Having rallied up to $1.3174 U.S. overnight, the sterling opened around 25 basis points lower in London at $1.3148 and has traded down to a low of $1.3120. Against the Canadian dollar, it is down from yesterday’s high of $1.6815 U.S. to open almost a cent lower in North America at $1.6727 U.S. The path of least resistance still appears to be to the downside.