The Canadian dollar is marginally firmer in early Toronto trading ahead of this morning’s Bank of Canada (BoC) events. The BoC interest rate decision is mostly a non-event. Very few, if any economists, analysts, or forecasters expect the central bank to do anything but leave the overnight rate unchanged, at 1.75%. That doesn’t mean that there isn’t any risk for the Canadian dollar from the meeting; there is. It comes from the tone of the statement but more importantly, from the quarterly Monetary Policy Report (MPR) outlook.
The Canadian economy slowed in the final quarter of 2019, but that was predicted by the BoC. There are concerns that it trim its 2020 Q1 growth forecast. However, the underlying theme to the two previous MPR’s were "downside risks from trade tensions." The signing of the U.S./China Phase 1 trade deal should go a long way in alleviating those tensions. If so, the MPR may be less dovish than the market expects, which could boost the Canadian dollar.
Canadian inflation data is released a couple of hours ahead of the interest rate statement. Consumer Price Index is forecast to rise 2.2% y/y in December, unchanged from the November reading. Core CPI is also expected to be unchanged at 1.9%. These readings show inflation is at the Bank’s target level, which eliminates the need to adjust rates lower.
The Canadian dollar weakened alongside its Antipodean cousins in early Asia trading, overnight. AUD/USD losses were exacerbated by weaker than expected consumer confidence data. Initially, the commodity bloc trio was weighed down by news that the coronavirus had spread to the U.S. Those fears dissipated after reports that Chinese authorities were on top of the outbreak. Asia losses were quickly reversed, and the Canadian dollar opened in Toronto with a small gain.
USD/JPY was in demand at the Asia open, but the rally ran out of steam in Europe. A drop in U.S. Treasury yields offset fading risk-averse sentiment from coronavirus concerns.
European traders continued to be distracted by news reports from the World Economic Forum in Davos, Switzerland. That is mainly because of President Trump’s attendance. Once he left, the focus shifted, in part, because any forum that includes Greta Thunberg as an "expert" can’t be taken seriously. USD/CHF rallied from 0.9660 yesterday to 0.9725 today with speculation the Swiss National Bank intervention was behind the move.
EUR/USD inched higher at the European open but the gains quickly disappeared, and the single currency is trading unchanged from yesterday’s close.
GBP/USD consolidated yesterday’s post-employment report gains in a $1.3036-$1.3067 range overnight. Prices exploded higher, touching $1.3122 in Toronto trading after the U.K. Confederation of British Industries Industrial Trends Survey -Orders was better than expected. The data sparked a revision of Bank of England rate cut odds, which dropped to 53% from 60%.
U.S. Housing Starts, Existing Home Sales and Building Permits data are on tap today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
