There is not a lot of love for the Canadian dollar among FX traders. A string of weak economic data and a dovish Bank of Canada outlook have soured the mood. It could get even worse on Friday if Retail Sales and inflation reports don’t live up to expectations.
The Canadian dollar has been trapped in a USD/CAD $1.3260-$1.3460 range since March 4, but surging oil prices have contained losses. West Texas Intermediate, at $58.45 U.S./barrel, is trading close to last week's peak. The Organization of the Petroleum Exporting Countries and Russia production cuts combined with Venezuela export disruptions, and a review of U.S. sanctions on Iran will continue to underpin prices and act as a drag on Canadian dollar selling.
This week’s FX trading action started on a subdued note due to a lack of actionable top tier data in the major markets and caution ahead of Wednesday’s Federal Open Market Committee (FOMC) meeting. The Fed is widely expected to leave interest rates unchanged and stick to its "patient, data-dependent" outlook, which has contributed to the broad U.S. dollar selling seen over the past few days.
FX traders remain on the alert for FX market disruptions caused by wide price swings in GBP/USD. U.K. Prime Minister Theresa May is rumoured to be making a third attempt at getting her Brexit deal passed by parliament. She is supposedly counting on MPs' fear of a "no-deal" Brexit to make her deal, palatable. The intraday GBP/USD technicals are modestly bullish while prices are above $1.3200 with a break above $1.3330 suggesting further gains to $1.3550.
A sharp spike in GBP/USD could lead to GBP/CAD demand, and Canadian dollar selling.
Canadian dollar traders are looking ahead to Friday when Retail Sales and inflation reports are released. The consensus is for inflation to rise to 0.5% in February, well above January’s dismal 0.1% increase. The gain will be attributed to higher gasoline prices and travel services. Retail Sales for January are predicted to rebound from December’s drop. If both reports surprise to the upside, the loonie will rally. However, gains may be short-lived because of the Bank of Canada’s dovish outlook and the risk that the BoC could cut interest rates in 2019.
Canadian dollar traders may be distracted by Tuesday’s Federal Budget release. The Trudeau government is around five months away from an election. The SNC-Lavalin debacle, combined with many Trudeau miscues have crushed the Liberals in election polling and suggest they would lose the election. Therefore, it is not a stretch to suggest that Finance Minister Bill Morneau will deliver a taxpayer-friendly budget. If one can't win votes on merit, the prevailing mentality seems to be, buy them.
There isn’t any U.S. or Canadian data on tap today.
