Canada January Gross Domestic Product surprised to the upside on Friday, rising 0.3% rather than the 0.1% that was expected. The better than expected report caught Canadian dollar bears flat-footed, and they scrambled to reverse positions which help lift the loonie. The report also raised the prospect of a better than expected Q1 in 2019.
FX markets opened on a positive note overnight. Better than expected China Purchasing Managers Index data jump-started a shift to risk seeking trades, elevating commodity currencies, commodity markets, and Asia equity indices, led by a 2.3% jump in the Shanghai Shenzhen CSI 300 Index. European equity indices rallied, supported by the Asia equity rally.
West Texas Intermediate posted a new 2019 high when prices climbed to $60.84 U.S./barrel which is where prices are trading in Toronto this morning. Oil prices are supported by ongoing production disruption in Venezuela due to US sanctions and electricity blackouts. The Chinese PMI data suggested renewed China crude demand from a pickup in economic growth which is occurring at a time of ongoing production cuts by the Organization of the Petroleum Exporting Countries. There are increased hopes for a successful conclusion to the U.S./China trade talks which as also improved global risk sentiment and contributed to the rise in the Canadian dollar.
The European FX session was a tad more subdued than Asia’s, and a rash of disappointing euro-zone Manufacturing PMI data reports didn’t help. Eurozone Markit PMI dipped to 47.5 in March, well below the February result of 49.3. Euro-zone inflation data didn’t help the Consumer Price Index fell to 1.4% from 1.5%, y/y in March. The news underpinned the U.S. dollar, and EUR/USD dropped from its Asia high of $1.1249 to $1.1222. The Canadian dollar rally stalled on the modest US dollar strength.
U.K. traders took a breather from Brexit news, albeit just briefly. GBP/USD rallied on better than forecast Markit PMI data. Also, traders seem to believe that the politicians will avoid a "no-deal Brexit". There are rumours that Prime Minister Theresa May could attempt to bring her Brexit plan for a fourth vote.
U.S. Retail Sales were weaker than expected falling 0.2% in February. The news wasn’t a total surprise, as the report was impacted by lousy weather.
The Canadian dollar is starting Q2 2019 on a positive note. Higher oil prices, an improved tone to risk and better than expected economic data have traders looking for additional gains in the coming days. However, that sentiment can change abruptly today after Bank of Canada Governor Stephen Poloz’s speech this afternoon. Poloz may not want to deviate from the somewhat uniform dovish outlook expressed by many of the world’s major central banks in the past few weeks. If so, the Canadian dollar will suffer.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
