Santa was good to the Canadian dollar. The local currency sank following a weaker than forecast October Gross Domestic Product report, December 23 but those losses were not sustained beyond Boxing Day.
The weak GDP data was not a total surprise to analysts. Bank of Montreal economists noted that many of the major indicators including, employment, retail sales, wholesale sales and housing starts were down during the month. Statistics Canada pointed out that the result was the first decline in eight months and that on a three-month rolling basis, GDP was up 0.2%.
Boxing Day was not a holiday in the U.S. Trading desks were lightly staffed, and those staffers sold U.S dollars across the board. There wasn’t a specific catalyst for the selling pressure, although month-end and year-end portfolio re-balancing flows likely played a role. U.S. equity gains in December have been stellar, which suggests portfolio managers will need to sell U.S. dollars for portfolio re-balancing requirements. USD/CAD dropped from a Christmas Eve closing level of $1.3165 to $1.3068 at the Toronto open today.
The Canadian dollar received additional support from a surge in oil prices. West Texas Intermediate, (WTI) the North American benchmark crude price, has jumped 3.3% since December 20, when it hit $60.10/barrel. It is trading at $62.10 this morning. Prices were supported by the American Petroleum Institute report that U.S. crude inventories declined by 7.9 million barrels in the week ending December 20. They got an added boost when the U.S. announced it had carried out airstrikes on five locations in Syria and Iraq. The strike was in response to recent missile attacks on U.S.-coalition bases.
The Canadian dollar is also benefiting from broad U.S. dollar weakness. The greenback has lost ground against all the G-10 major currencies, led by a 1.8% rise in the New Zealand dollar and a 1.4% increase in the Australian dollar. The NZD/USD rally continued to be underpinned by the U.S./China Phase-one trade deal. China Ambassador to the U.S. Cui Tiankai said "Since we have spent so much time with such great efforts at reaching this agreement, I think it would certainly serve the interests of both sides if this agreement is implemented." Planned increases in government infrastructure spending also supported NZD/USD.
GBP/USD rallied from $1.2908, December 24 to $1.3128 in Toronto today due to a mixture of short-covering, Brexit optimism and broad U.S. dollar weakness. EUR/USD followed suit although its gains were more subdued. The single currency climbed from $1.1070 to $1.1208 before inching down to $1.1188 in Toronto today.
The U.S. economic reports available today include Chicago Purchasing Managers Index and Pending Home Sales. 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
