USD/CAD - Loonie Finds Support Ahead of OPEC Meeting

Canadian Dollar (CAD)

The Canadian dollar continues to track oil prices quite closely. On Monday, a slightly firmer U.S. Dollar and lower NYMEX crude prices pushed the U.S./Canadian-dollar to $1.2812; its highest level since November 2. In London this morning, the pair traded as high as $1.2835 before settling just below $1.28 at the North American opening. The 173rd meeting of the Organization of the Petroleum Exporting Countries starts in Vienna next Thursday and it's at the point where normally there’d be lots of talk about production cutbacks and quota ceilings, but it hasn’t happened yet and NYMEX crude is only 10 cents firmer around $56.60 U.S..

Last week, Bank of Canada Senior Deputy Governor Carolyn Wilkins said the central bank had decided to advance the timing of speeches providing economic updates to "align them more closely with its interest rate decisions. Unfortunately, these speeches are going to come after BoC meetings in order to "explain the thinking". A skeptic might call this 'backward guidance' as its certainly no help to predicting future decisions. Instead, as the market awaits fresh economic data, the focus is on Canadian wholesale sales numbers this morning and retail sales on Thursday. As the OPEC meeting approaches, however, keep a close eye on those oil prices for clues to the loonie.

US Dollar (USD)

USD/CAD expected range: $1.2760 – $1.2840

The U.S. dollar is trading as though the Thanksgiving holiday is already here. Its index against a basket of currencies opened the week around 93.50, but slipped in Monday to test the big support level we’ve been highlighting at 93.30. By the close of business in New York yesterday, renewed jitters over the German political situation weighed on the euro and pushed the U.S. dollar index around 40 basis points off its low.

In the Asian session overnight, the index traded to 93.78 but has been exceptionally quiet through the European morning and opens around this level today. There is no U.S. economic data today other than existing home sales which rarely shift the market dials much. Instead, ahead of tomorrow’s Federal Open Market Committee Minutes, outgoing Fed Chair Janet Yellen is at Stern Business School in New York this afternoon in an event billed as "In conversation with Mervyn King". Whether her resignation yesterday loosens her tongue remains to be seen though the CME probability calculator shows a 91.5% chance of a 25-basis-point rate hike on December 13 with a scarcely-believable 8.5% probability of a 50-bp move.

Euro (EUR)

CAD/EUR expected range: $0.6630 – $0.6690

The euro has very modestly extended the losses it suffered on Monday. Having closed in New York last night around $1.1735 U.S, it managed a best level in Europe earlier today of $1.1750 but is around 25 pips easier at the North American open. Against the Canadian dollar, the euro had a very brief spike up to $1.5070 overnight but this was more than fully reversed and the pair opens at almost exactly 1.5000. With no fresh incoming economic data, the focus of attentions remains very firmly on German politics.

Experts can summarize the four options facing Chancellor Angela Merkel quite simply: She can try to struggle along with a minority government which then risks being defeated in Parliament on any single issue. She can call fresh Federal elections and hope to increase her party’s 33% share of the vote it won in September. She can try to form a coalition with the SPD who have already rejected this option. Or she can try to restart Sunday’s failed talks in the hope that the FDP’s leader might cop the blame for the instability and be prepared to renegotiate. None of these four options look particularly appealing to Ms. Merkel and none of them provide the solid and stable leadership the European Union needs during Brexit negotiations. Flash Purchasing Managers Index data on Thursday might help switch investor attention back on the euro-zone economy, but for now politics are weighing on the euro.

Great British Pound

CAD/GBP expected range: $0.5890 – $0.5935

The British pound extended its recent gains with its pairing with the U.S. dollar hitting a best level overnight of almost $1.3280 before opening in London at $1.3250 and then down to $1.3235 at the North American opening. Against the Canadian dollar, sterling very briefly traded on to a $1.70 big figure but has subsequently fallen back to $1.6925. Talk this morning is that after a meeting of the Cabinet sub-committee on Brexit, Prime Minister Theresa May is prepared to increase the financial offer to the EU in an attempt to break the negotiating deadlock.

No figure will be made public at present but it is expected to be put to the EU side at least a week before the next European Council on December 14 and 15. The 'usual suspects' on the Conservative benches are all over the British newspapers this morning arguing that not a penny more should be offered, but it is increasingly clear that the EU will not move on until the so-called divorce bill is settled. Elsewhere, Bank of England Deputy Governor Dave Ramsden gave his first official speech in London yesterday evening saying he had a "somewhat different" view of the economy to most of his colleagues.

"I attach some weight to the idea that workers have responded to the changing outlook by showing greater flexibility in their wage demands… If true it would mean there is a little more room than headline measures of slack suggest for the economy to grow without generating above-target inflation in the medium term". For the moment the GBP is not really being driven by interest rate expectations. Instead, it’s all about relative risks externally and how domestic politics will play out after Wednesday’s U.K. Budget speech.