"Hot enough for ya?" That was a popular question over the Canada Day long weekend for large parts of the country. The Canadian dollar was feeling the heat yesterday. USD/CAD climbed from a low of $1.3132 at the Asia open to $1.3222 just before the European open today. The move was in response to broad U.S. dollar strength stemming from yesterdays better than expected U.S. Institute for Supply Management Manufacturing data. The report helped to underscore the differences in euro-zone and U.S. economic growth.
Euro-zone political issues also underpinned USD/CAD. German Chancellor Angela Merkel’s coalition government was at risk of collapse over migrant policies. When a deal was reached, the government was saved, EUR/USD retreated, and the Canadian dollar rallied in concert with
the broad U.S. dollar retreat.
The Canadian dollar will trade with general U.S. dollar sentiment until Friday. That’s when Canadian trade and employment reports are due. The unemployment rate is expected to be unchanged at 5.8% while employment is forecast to rise 17,500. There isn’t much change expected in the trade deficit. (forecast 1.9 billion)
The Canadian dollar touched $1.3383 on June 27 after Bank of Canada Governor Stephen Poloz’s speech in British Columbia. He stressed that the BoC could not react to headlines in setting monetary policy but had to focus on economic data. He also said that individual data points did
not carry much weight because the Bank focused on the trend. The domestic economic data has been pretty good, and that suggests a July 12 rate hike is more than likely even if Friday’s data is a tad soft.
The Canadian dollar is still extremely vulnerable to new U.S. trade actions. On the weekend, President Trump was complaining that the World Trade Organization treats the U.S. unfairly and he is talking about quitting the treaty. He also said that car imports give the U.S. a lot of leverage in trade talks. The threat of a 25% tariff on cars imported into the U.S. would devastate the Ontario economy, and that threat is undermining the Canadian dollar.
The Canadian dollar, and FX markets, in general, are likely to trade quietly this afternoon and for the next few days. U.S. markets are closed on Wednesday for Independence Day celebrations.
The lack of U.S. liquidity puts a damper on European trading as well.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians.
