The Canadian dollar is slowly drifting lower and weak economic data isn’t helping. Last week, Existing Home Sales data showed that sales were down 2.5% in December and core inflation was stuck at 1.7% Tuesday, Canada posted soft Manufacturing Shipments and Wholesale Sales data. Yesterday’s Retail Sales data was lower than expected. November Retail Sales fell 0.9%, worse than the 0.6% drop that was forecast. The decrease was attributed to falling gasoline prices but undermined the Canadian dollar.
The weak domestic data is coming at a time when the US dollar is grinding higher against the G-10 major currencies. EUR/USD is at a two-week low while USD/JPY is at its highest level for January.
EUR/USD selling this morning came after Eurozone and German Markit Manufacturing Purchasing Managers Index data was weaker than expected. It supported European Central Bank (ECB) President Mario Draghi’s cautious outlook when he addressed the E.U. parliament last week. The ECB left interest rates unchanged today and repeated that rates would remain at existing levels at least through the summer of 2019. Traders are looking ahead to Draghi’s press conference where he is expected to maintain his dovish view.
GBP/USD retreated from its overnight peak of $1.3090, in part because of the broad U.S. dollar gains and in part due to profit taking. Traders were encouraged to sell GBP/USD after the E.U. Chief Brexit Negotiator implied that the March 29 deadline was firm. He said U.K. politicians opposing a "no-deal" Brexit does not mean it won’t happen on the scheduled date. The E.U. would want to see a positive majority for another solution. GBP/USD dipped to $1.3020 in early Toronto trading.
The Canadian dollar was merely a bystander as the European session unfolded, but that wasn’t the case in Asia. The Canadian dollar fell in tandem with sinking Australian and New Zealand dollars. AUD/USD rallied to start their morning after Australia reported a 21,600-unit gain in new jobs and a drop in the unemployment rate. The positive sentiment soured when it was revealed that all the new jobs were part-time. After National Australia Bank announced it was raising variable home loan rates, economists suggested it would increase the odds that the Reserve Bank of Australia (RBA) would have to cut interest rates as a way of relieving funding pressures. AUD/USD dropped from $0.7165 to $0.7094, and the Canadian dollar went down with it.
There isn’t any significant Canadian economic data on tap for the rest of this week. U.S. government shutdown news, the ECB outlook, equity market price action and headlines from Davos will compete to provide US dollar direction. The Canadian dollar will track those moves.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
