USD/CAD - Loonie Keeps Gains with Oil Prices over $58.00 U.S.

Canadian Dollar (CAD)

The Canadian Dollar had another good day Wednesday, boosted by a further sharp rise in oil prices to their highest level of the year.

Only 10 days ago, NYMEX crude was at $55.19 U.S. per barrel. On Tuesday, this week it finished around $57.05 and yesterday it traded as high as $58.02 U.S. before settling today ain the mid-$57.80’s. The rise in oil prices was very timely for the Canadian Dollar as some of the earlier optimism around the "NAFTA 2.0" talks began to be reassessed locally.

Indeed, one of the major banks in Canada put out a report saying the loonie could fall as much as 20% if the talks failed in the New Year. It stressed this was not the bank's central scenario (otherwise, it might now be looking for a new Head of Research) but noted, "Despite ongoing threats from President Trump and a more contentious renegotiation process of late, we continue to view NAFTA termination as a tail risk… the risk of significant negative impacts to economic activity and financial volatility, through the channel of policy uncertainty, is non-trivial."

USD/CAD is down at to a four-week low of $1.2780 at this morning’s North American open while the loonie's pairing with the Australian dollar is at $0.9675.

US Dollar (USD)

USD/CAD expected range: $1.2720 – $1.2790

To our readers in the United States – Happy Thanksgiving Day. Celebrated on the fourth Thursday of November in the U.S. and the second Monday of October in Canada, it began as a celebration to bless the harvest. Nowadays it’s a day of rest before the serious business of shopping begins in earnest on "Black Friday", the day when it used to be said storekeepers finally moved out of the red to make some profits before year-end.

The U.S. dollar most certainly did not enter the holidays in a celebratory mood. It tumbled on Wednesday and has stayed lower throughout the Asian session and into the European morning. The dollar’s index against a basket of major currencies fell through technical support at 93.30 even before the release of a pretty dovish set of Federal Open Market Committee Minutes.

These revealed, "A number of participants were worried that a decline in longer-term inflation expectations would make it more challenging for the Committee to promote a return of inflation to 2% over the medium term. These participants’ concerns were sharpened by the apparently weak responsiveness of inflation to resource utilization and the low level of the neutral interest rate, and such considerations suggested that the removal of policy accommodation should be quite gradual."

None of this yet changes the outlook for the upcoming December 13 FOMC meeting but it does reveal a clear shift of thinking. Maybe it’s all designed to give incoming Fed Chair Jerome Powell more room for manuevre in the New Year.

For the near-term, however, it is likely to keep up the downward pressure on the greenback, whose index opens this morning at just 92.7.

Euro (EUR)

CAD/EUR expected range: $0.6655 – $0.6710

The euro is the strongest currency of all this morning, not because of any great change in the German political situation – though it is rumoured that the leader of the SPD, Martin Schulz, may resign later today – but on the back of a stunning set of "flash" Purchasing Managers Index numbers in France, Germany and the euro-zone. The euro-zone manufacturing index of 60.0 was the strongest in 211 months, the services index was at a six-month high of 56.2 whilst the composite index was at a 79-month high of 57.5.

Markit’s Press Release noted, "The euro-zone economy is showing signs of picking up momentum in the fourth quarter, with multi-year highs seen for all main indicators of output, demand, employment and inflation in November. Business activity and prices rose at the steepest rates for over six years, while the largest accumulation of uncompleted work for over a decade encouraged firms to take on staff at a rate not seen for 17 years. Inflows of new orders showed the largest gain since February 2011. The biggest increase in factory new orders since April 2000 helped offset a slight moderation in the service sector. Goods exports increased at a survey record pace".

The euro pairing with the U.S. dollar has extended Wednesday gains to reach a high of $1.184 where it opens in North America this morning. EUR/CAD hasn’t quite kept pace but has held on to a $1.50 handle for the whole of the past 18 hours, opening today around $1.5015.

Great British Pound

CAD/GBP expected range: $0.5905 – $0.5940

The pound had a pretty mixed day on Wednesday – up against the U.S. and Aussie but down slightly against the euro, Canadian and New Zealand dollars – after U.K. Finance Minister Philip Hammond delivered his annual Budget speech to the House of Commons.

The economic numbers he presented from the independent Office for Budget Responsibility (OBR) made for pretty grim reading. After growing just 1.5% in 2017, U.K. gross domestic product is then expected to grow over the next five years by 1.4, 1.3, 1.3, 1.5 and 1.6 percentage points. Never in modern history has a U.K. finance minister stood up to forecast growth below 2% in every one of the next five years.

Even the initially positive news headlines might not stand up to much scrutiny when it’s realized that cutting transaction taxes on residential property merely pushes up prices with the benefits accruing to existing owners, not new home buyers. It is often said that a Budget should be judged after five weeks, not five minutes and if the early smiles on government faces begin to evaporate, then so too will the recent enthusiasm for the pound, which opened Thursday down 20 pips at $1.3305 U.S.; with GBP/CAD half a cent off its overnight high to $1.6874.