USD/CAD - Dollar Steady, New Jobs Survey Out Today

Canadian Dollar (CAD)

Wednesday was a poor day for the Canadian dollar, as warnings that its recent strong run could be coming to an end. The U.S.-Canadian-dollar pairing rose to a high of $1.2787, while even the loonie's pairing with the Australian dollar managed to close higher on the day after hitting a best level of $0.9711. The Canadian dollar was hit by a combination of lower energy prices and a generally poor set of domestic economic data. House prices in Canada fell another 1.0% m/m in October after a -0.8% decline in September which took the annual rate of growth down from 11.4% to 10.0%; a number which investors can be virtually certain will fall much more sharply over the next six to nine months.

As prices fell, so too did the pace of transactions with existing home sales up just 0.9% m/m in October after a 2.1% m/m gain in September. Today brings manufacturing sales (f/c -0.5%) while ADP will launch iits first Canadian Employment Report at a breakfast function in Toronto. Its U.S. report used to be quite widely watched as a lead indicator of payrolls but in fact now it incorporates the last official numbers as in input, making it a much less reliable guide to upcoming data. As ADP's press release notes, "Leaders from ADP will speak about the October report, what it means to the Canadian economy, and how to use monthly employment insights to make more informed decisions", and it may get a bit of coverage on an otherwise quiet day. USD/CAD opened in North America this morning around $1.2766 with AUD/CAD at $0.9693.

U.S. Dollar (USD)

USD/CAD expected range: $1.2720 – $1.2850

Wednesday was a day of two halves for the U.S. Dollar. Its index against a basket of major currencies tumbled from 93.53 to a low just ahead of Consumer Price Index and retail sales data of 93.12. Within a couple of hours, it had regained all its losses and closed in New York exactly unchanged on the day. Overnight in Asia and Europe, the index has traded essentially sideways between 93.50 and 93.69, taking some comfort both from yesterday’s rebound and a more positive performance from stock index futures. The S&P 500 closed around eight points above its intra-day low and this morning is called around 10 higher at the New York open with the Dow Jones Industrials up 65 points.

On the economic front today brings fresh data on manufacturing and industrial production as well as the weekly initial jobless claims data. Consistent with the Institute for Supply Management survey, consensus expectations are for manufacturing output to have risen around 0.6% in October. The CME’s online calculator at the start of the day on Wednesday showed the probability of a December Federal Reserve hike at 96.7%. By the close of business, it stood at…. 96.7% so it’s obviously not changing interest rate expectations which are moving the greenback. Instead, its intra-day swings in the stock market which have become the key driver and these, in turn, could hinge crucially on a vote this afternoon in the House on President Trump’s tax-reform bill.

Euro (EUR)

CAD/EUR expected range: $0.6625 – $0.6705

The euro surged on to a 1.18 "big figure" Wednesday but has found it very difficult to hold on to that level. By the New York afternoon it was back on $1.17 and through the Asian and European sessions overnight the high has been $1.1799 U.S. The move lower certainly hasn’t been driven by any incoming economic news (factory orders in Slovakia are never a market-mover!) and the European Central Bank's Chief Economist gave a pretty upbeat address to a working group of bank economists in Brussels this morning. He noted that, “domestic demand has become the mainstay of growth in the euro area, making the recovery more resilient to developments overseas.

Real GDP growth is projected to remain above potential growth in the coming years. The strength and resilience of the recovery tends to foster our confidence that reflationary forces will gradually support a return of headline inflation towards a level that is below, but close to, 2% over the medium term”.

For all the fancy econometric analysis available to the ECB through its vast and highly-qualified research staff, it should be pointed out that petrol prices are now rising throughout Europe. And when prices rise, so does inflation! ECB Council member Villeroy de Gallau speaks in Amsterdam at press time Thursday, while his colleague Vitor Manuel Constancio is topping up his frequent flyer miles and speaks later in the day in Ottawa. The euro pairing with the U.S. opens in North America at $1.1760 having broken down through the Asian low of $1.1770. EUR/CAD, meantime, is clinging by its finger tips to a 1.50 ‘big figure’ and opens around 1.5006.

Great British Pound

CAD/GBP expected range: $0.5925 – $0.5970

The British pound has managed to stay on the same big figure against the U.S. dollar for the last 24 hours; a big change from the volatility which investors have seen each day for the last couple of weeks. Admittedly it has been a close call: the low has been $1.3100 U.S. and the high $1.3197 and it opens in North America this morning around $1.3190. Against the Canadian dollar, the range over the same period has been GBP/CAD $1.6786 to $1.6848 and it opens today very close to the top of this range at $1.6840.

Economic data in the U.K. in the first part of this week showed the cost of goods and services as measured by the Consumer Price Index, the number of people in work and the amount they were collectively paid. Today, investors got to see how all that translated into consumer spending. After a -0.8% m/m tumble in September, October rebounded a little to +0.3% m/m; a 10th above consensus expectations. The annual rate of sales is now negative (-0.3% y/y) for the first time since 2013 and the official statisticians comment that, "growth month-on-month in October was particularly strong in the second-hand goods sector", doesn’t exactly point to buoyant consumer confidence.

Speaking about Brexit in Liverpool where he will be joined later today by some of his Monetary Policy Commitee colleagues, Bank of England Governor Mark Carney said, "We will do whatever we can to support the economy during the transition - whether there is no deal or a comprehensive deal.” For the moment, it seems the two MPC members who voted to leave Bank Rate unchanged might have called the U.K. economy correctly.