This week’s Canadian dollar rally got derailed yesterday. Canada November Gross Domestic Product declined 0.1%, and that news helped to limit demand for the domestic currency. The negative GDP growth rate did not come as a surprise. Most economists and analysts had forecast the result. What hurt was that the decline was rampant throughout the underlying sectors.
Wholesale and Retail sales were soft as was manufacturing. The data provided traders with a good excuse to book profits after this week’s steep Canadian dollar gains.
The Canadian dollar closed January as the second-best performing currency for the month, rising 3.73% which was just below the Australian dollars 3.78% gain. The New Zealand dollar and British Pound also put in strong performances, EUR/USD and USD/JPY saw a lot of volatility during January but finished virtually unchanged. The Swiss franc was the only currency to lose ground, thanks to a reduction in risk aversion trades.
Bank of Canada Deputy Governor Carolyn Wilkins spoke about Canada’s job market yesterday. She noted that Canada gained 163,000 full-time jobs in 2018 while the unemployment rate, at 5.6%, was an historic low. She said that the BoC would monitor wage gains and labour shortages in parts of the country to keep track of emerging inflation pressures. The Canadian dollar did not react to her speech.
The Canadian dollar traded in a narrow range overnight as did the other G-10 major currencies and opened in Toronto with a small loss compared to yesterday’s close. The Dow Jones Industrial Average was flat but was still had a 7.2% gain in January. The S&P 500’s 7.67% January gain was a record.
Positive sentiment from the equity market performance was offset by some concern about the China and U.S. trade talks. The latest round of discussions finished with China promising to increase their purchases of soybeans. President Trump suggested that he would meet with President Xi Jinping in February. These developments were not enough to stifle concerns that progress was slow.
Weaker-than-expected China Manufacturing PMI also put a damper on trading activity. January PMI was 48.3, below the forecast of 49.5. A result below 50 is indicative of a shrinking economy. The Australian and Canadian dollars suffered marginally on the news.
Euro-zone Purchasing Managers Index data was as expected, but U.K. results were weaker than forecast. GBP/USD dropped from 1.3113 to 1.3045 because of that report and on renewed fears of a "no-deal" Brexit.
FX traders were also reluctant to get involved ahead of today’s U.S. economic data releases which include non-farm payrolls, which is expected to show a gain of 165,000 jobs. Other U.S. data includes Institute for Supply Management Manufacturing PMI and Michigan Consumer Sentiment.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
