The Canadian dollar is consolidating its post-Bank of Canada (BoC) monetary policy statement gains. The currency rallied sharply on December 4 when the BoC left interest rates unchanged and appeared to be content with leaving them that way for the foreseeable future.
And just to be sure that markets got the message, BoC Deputy Governor Timothy Lane reiterated the message yesterday. Lane told an audience in Ottawa that the BoC was "more confident in their outlook for growth and inflation." He pointed out that global investment improved, and Purchasing Managers Indexes stabilized. He said that Canada’s third-quarter slowdown was temporary, supported by the surprising strength of business investment.
Lane also made the case that the resilience in the domestic economy allowed the BoC to keep interest rates steady when the other major central banks lowered rates.
U.S./China trade talk developments also supported the Canadian dollar. Yesterday, President Trump said, "something could happen with regards to tariffs on December 15th, but we are not discussing that yet." The obvious conclusion is that since tariffs are slated to increase that date, the increase may be scrapped. China helped to reinforce the view when they said that they would waive tariffs on imports of US soybeans and pork.
Oil prices have held onto their recent gains. West Texas Intermediate (WTI) oil is trading above its 2019 mid-point price, supported by U.S./China trade talks progress and OPEC production cut plans. The Organization of the Petroleum Exporting Countries is reportedly going to cut existing production by 500,000 barrels per day and leave those cuts in place until the end of March 2020. The Canadian dollar is getting a modicum of support from the outlook for higher oil prices.
The Canadian dollar traded quietly inside a very narrow range overnight, as did the rest of the G-10 major currencies. The exception was GBP/USD which dropped from $1.3163 to $1.3113 on the back of profit-taking ahead of a new series of U.K. election polls expected this weekend.
GBP/USD bounced from the overnight low to 1.3145 in early Toronto trading, supported by a jump in the Halifax House Price index. It rose 2.1% (three-month, year over year) compared to forecasts for a 1% gain.
EUR/USD was unable to extend gains above $1.1100. Large size option contracts with strikes around $1.1100 expire today which stifle trading. Prices were also weighed down by a weak German Factory orders report which sparked renewed talk of recession risks in the country.
U.S. and Canadian employment reports came out this morning. U.S. non-farm payrolls zoomed 226,000, confounding the experts who issued a forecast of 180,000.
Canada was expected to add 10,000 jobs while keeping the unemployment rate unchanged at 5.5%. The reality was much worse; a loss of 71,000 jobs and a hike of 0.4 percentage points to 5.9%
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
