Bank of Canada Governor Stephen Poloz may have given the Canadian dollar a lift in a speech yesterday. It may have been inadvertent, but the currency climbed just the same. Poloz delivered a mildly hawkish speech which suggested that he was confident that the current economic slowdown was just temporary. He said there were many areas of encouraging economic growth and clear signs that Canada was adjusting to the challenges. Those remarks were fairly positive, so he tempered his enthusiasm by saying that the data shows a mixed picture and the outlook continues to warrant interest rates below neutral.
The Canadian dollar was already in demand before Poloz’s remarks thanks to surging oil prices West Texas Intermediate climbed from $58.72 U.S. on Thursday to $62.17/barrel in Europe this morning. The oil price gains are fueled by expectations that increased sanctions against Iran and Venezuela will exacerbate production cuts by the Organization of the Petroleum Exporting Countries. OPEC fears reduced supply in a rising demand environment, especially if the US and China can come to terms on a trade deal.
The combination of Poloz’s remarks and higher oil prices lifted the Canadian dollar. It was the only currency to rise against the greenback, and it is trading in the middle of its overnight range.
The BoC is out of step with its Australian counterpart. The Reserve Bank of Australia left interest rates unchanged at 1.5%. However, the statement left the door wide open to an interest rate cut. The Australian dollar sank on the news
The Canadian dollar is still vulnerable to a shift to safe-haven currencies which could be triggered by a "no-deal" Brexit. Last night, U.K. politicians failed to pass any motions designed to garner a compromise to Prime Minister Theresa May’s Brexit plan. There were reports that May would face a no-confidence vote, triggering an election. Some U.K. politicians want the government to extend article 50, which is something the E.U. will not support. GBP/USD fell steadily in overnight trading.
The U.S. dollar opened in Toronto with modest gains against all the major currencies except for the Canadian dollar. The greenback is in demand because of divergent economic growth between America and the rest of the G-10 nations. U.S. economic growth is outperforming that of the euro-zone, Japan and Canada. Expectations for U.S. rates to remain unchanged for the balance of the year have sent equity prices soaring which in turn led to U.S. dollar demand.
Today, U.S. Durable Goods Orders data will be released. Orders are expected to drop 1.8% due to a drop in Boeing orders. The Canadian calendar is empty.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
