The Canadian dollar is still grinding out gains. The rally that began on July 17 is intact, but further gains are having a bit of a struggle due to a plethora of technical resistance levels. The loonie has benefited from a rebound in the domestic economy. Economic weakness in the first few months of 2019 gave rise to speculation that the Bank of Canada would be forced to cut interest rates. The BoC, on the other hand, wasn’t nearly as pessimistic with its outlook, and was still calling for a rate increase.
The May 29 policy statement said that "continued strong job growth suggests that businesses see the weakness in the past two quarters as temporary. Recent data support a pickup in both consumer spending and exports in the second quarter, and it appears that overall growth in business investment has firmed. Overall, recent data have reinforced Governing Council’s view that the slowdown in late 2018 and early 2019 was temporary, although global trade risks have increased. In this context, the degree of accommodation being provided by the current policy interest rate remains appropriate."
The next BoC monetary policy meeting is set for next Wednesday, July 10. The spate of better-than-expected economic reports warns that the statement may be more neutral than dovish, which would underpin the Canadian dollar even more.
The Canadian dollar rally took place not just because of domestic issues. Widespread U.S. dollar selling against the major G-10 currencies was a major contributing factor to the gains. President Trump’s continued criticism of Federal Reserve Chair Jerome Powell and the Fed’s monetary policies were not-too-subtle calls for a weaker U.S. dollar. Trump even tweeted about the "strong dollar."
U.S. Treasury yields have dropped sharply, and that led to a narrowing of USD/CAD interest rate differentials, which provided another layer of support to the Canadian dollar.
Our currency traded sideways in a quiet overnight session with activity hampered by today’s U.S. July 4 holiday. The lack of U.S. markets and a shortage of actionable European economic data ensured a dull European session as well.
Oil prices were underpinned and climbed from $56.50 U.S./barrel to $57.54/b after Trump appeared to threaten Iran when he tweeted "Iran has just issued a New Warning. Rouhani says that they will Enrich Uranium to 'any amount we want' if there is no new Nuclear Deal. Be careful with the threats, Iran. They can come back to bite you like nobody has been bitten before!"
There aren’t any Canadian economic reports available today and the U.S. holiday suggests the Toronto FX session will be very quiet.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
