The Stars and Stripes will be waving furiously today as Americans celebrate their Independence Day. As a matter of course, all U.S. markets are closed which will severely curtail trading activity in all Canadian markets
The Canadian dollar has recovered most of its losses incurred since the middle of June when rising global trade tensions led to broad U.S. dollar gains. The catalyst for the recovery was a speech and press conference by Bank of Canada Governor Stephen Poloz. He said that, regarding monetary policy decisions, the Bank is "data-dependent not headline-dependent." He acknowledged that the Executive Committee was well aware of the trade tensions, threats to the North American Free Trade Agreement, and the possibility of tariffs on cars imported into the U.S., but said decisions could only be made on data and not just a single data point but the overall trend.
His remarks led to Canadian dollar demand as traders scrambled to protect profits. USD/CAD dropped from $1.3383 a week ago to $1.3114 this morning, in Europe.
The Bank of Canada is widely expected to raised interest rates at its July 12 monetary policy meeting, supported by last weeks April Gross Domestic Product data and the positive outlook from the Business Outlook Survey. Poloz also highlighted that inflation was on target and that the output gap was closed.
On Friday, Canadian employment and trade data reports are to be released. Canada is expected to add 17,500 jobs while the trade report is expected to be close to unchanged. If so, it will all but guarantee a rate hike next Thursday.
The U.S. non-farm payrolls report is also on tap tomorrow and expected to show a gain of 190,000 jobs and Average Hourly Earnings to rise 0.3%. An upside surprise to this data, especially average hourly earnings, will put the focus on the next U.S. Federal Reserve rate hike and boost the U.S. dollar against the major G-10 currencies.
If so, it could halt the nascent Canadian dollar rally in its tracks. If prices move above $1.3190, the near term target becomes $1.3260.
The NAFTA trade talks appear to be on the back burner, at least as far as the U.S. is concerned. Mexico has a brand new government and is eager to start talks quickly. Canada also wants talks to continue, but President Trump appears to have lost interest at least until the U.S. mid-term elections are completed. The uncertainty surrounding the viability of NAFTA is a significant barrier to Canadian dollar gains
There isn’t any Canadian or U.S. data due today, and because of the U.S. holiday, trading will be subdued.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians.