USD/CAD - Dollar Shrugs Off Lower Oil Prices

The Canadian dollar had an extremely quiet night in Asia but right from the start of trading in Europe, the U.S.-Canadian-dollar pairing moved steadily lower to be around 30 basis points below Friday’s closing level. The pair opened in North America this morning at $1.2680; the lowest since last Thursday morning. This is the start of a potentially very busy week for the loonie, with several highlights of note on the Canadian calendar: the Bank of Canada’s Financial System Review on Tuesday and the release of the labour market report and Q3 Gross Domestic Product figures on Friday.

Economists are estimating annualized GDP growth of 1.8% in Q3, down from 4.5% in the second quarter. Canada is unusual – indeed it is a world leader – in producing monthly GDP numbers. July was flat m/m whilst in August GDP edged down by 0.1% the first m/m drop since October 2016. In between these two big domestic events, on Wednesday, we should see a Statement from the 173rd meeting of the Organization of the Petroleum Exporting Countries in Vienna. NYMEX Crude reached a fresh 2017 of $58.82 on Friday but has slipped around 35 cents overnight to $58.45. The Canadian dollar’s reaction to oil prices has recently been quite straightforward, at least until softer economic data were published and this morning’s price action for the currency has been pretty resilient given lower crude. As ever, though, a focus on movements against a weak U.S. dollar can be somewhat misleading; the CAD has actually slipped on most of its other cross pairs.

US Dollar (USD)

USD/CAD expected range: $1.2625 – $1.2720

The U.S. dollar ended last week at its lowest level since September 25 and after holding steady during the Asian session overnight, has come under further pressure during the European morning. Its trade-weighted index closed on Friday at 92.45 and it has traded as low as 92.31 in London hours, falling against every one of the major currencies tracked here. This week, outgoing Federal Reserve Chair Janet Yellen is testifying to the Congressional Joint Economic Committee on Wednesday, whilst the Fed’s targeted measure of inflation, PCE, is to be released Thursday.

Recall that the uncertainty over inflation in the November Minutes last week was the main reason for the greenback’s lurch lower. Interest rate markets continue to fully discount a 25-basis-point rate hike on December 14 but this is no longer much of a prop for the U.S. dollar. Traders will instead be watching the Senate Banking Committee confirmation hearing on Tuesday for clues as to what next Fed Chief Jerome Powell may be thinking on inflation and monetary policy. For today, we have just the October New Home sales and the Dallas Fed manufacturing index to watch for.

Euro (EUR)

CAD/EUR expected range: $0.6590 – $0.6630

The euro has paused for breath overnight after its rapid rise last week which saw it jump from a low of $1.1715 U.S. on Tuesday morning to a high on Friday of $1.1930. It did manage a best level in European trading of $1.1951 U.S. today but has eased back from there to open in North America at $1.1935. Against the Canadian dollar, it touched a high of $1.5169 in London but opens around 25 pips off this level. For the EUR this week, we could see a repeat of the tussle between economics and politics.

Thursday brings the flash estimate of euro-zone Consumer Price Index in November but before then, concerns about the strength, or otherwise, of German Chancellor’s Angela Merkel’s position are likely to dominate trader sentiment. The immediate loser in the Coalition talks was SPD leader Martin Schulz, though his party may still be able to extract significant concessions as the price for its ongoing support of the CDU/CSU. It may gain control of the Finance Ministry or it may force Merkel’s CSU partner to abandon the proposed 200,000 annual cap on asylum seekers. “Hour zero: country without direction, unity, chancellor?” was how Der Spiegel, Germany’s leading current affairs magazine, summed up the crisis. Stern magazine, meantime, depicted Merkel upside down with the headline: “Free fall . . . end of the Merkel era”. Another fascinating week is in prospect for the Germany, the EU and its Single Currency…

Great British Pound

CAD/GBP expected range: $0.5890 – $0.5920

The pound drifted lower in the Asian time zone Monday but from 6: 30 a.m. London time to late morning it rose 35 pips from $1.3315 U.S. to a best level just over $1.3350 U.S. before then giving back a bit of these gains. The pound's pairing with the loonie, meantime, touched a best level of $1.6945 but then was dragged down around 15 pips to just below 1.6930. After a weekend taken up by yet more twists and turns in the interminable Brexit negotiations, it was a relief to find something more uplifting to talk about today: another Royal Wedding.

It has been only a couple of months since Prince Harry made his first public appearance with his girlfriend, Meghan Markle, at the Invictus Games in Toronto. A statement issued by Clarence House this morning said, “His Royal Highness the Prince of Wales is delighted to announce the engagement of Prince Harry to Ms. Megan Markle.” The wedding is to be held next year, with the ceremony conducted by the Archbishop of Canterbury. The U.K. economy and its’ government may be having a hard time but the Brits do know how to put on a royal spectacle! For the more prosaic matters of interest to currency traders, attention will be on a 6.30 p.m. speech from Bank of England Monetary Policy Committee ‘dove’ Dave Marsden; one of the two members who voted against a 25-basis-point rate hike in November’s 7-2 split decision.