The Canadian dollar continues to ignore the political drama. Back in the day, the firing of a finance minister in the middle of a global recession would have had serious repercussions for the currency. In 2020, not so much.
Prime Minister Justin Trudeau has prorogued parliament until September 23. It is a desperation move to deflect attention from the WE Charity scandal and prevent further scrutiny into the Liberal government’s involvement with the organization. FX traders do not care.
The Canadian dollar direction is driven solely by U.S. dollar sentiment. That sentiment is bearish. Traders have sold U.S. dollars for weeks due to a variety of reasons which include the following:
The Federal Reserve interest rate policy is extremely dovish. Fed Chair Jerome Powell said: "we remain committed to using our tools to do what we can, and for as long as it takes, to provide some relief and stability, to ensure that the recovery will be as strong as possible, and to limit lasting damage to the economy." Dovish Fed policies have driven down interest rates which makes the greenback a less attractive investment.
Broad U.S. dollar sentiment is negative, mainly because of the Fed’s low-interest rate policy. The Canadian dollar has rallied on the back of widespread U.S. dollar selling.
The U.S. dollar is under pressure due to expectations that the next round of the Trump administration’s fiscal stimulus plan will also support global economic growth, a "risk-on scenario."
The U.S. dollar is sold because the latest round of domestic economic reports supports forecasts for a second-half recovery in America.
FX price action has stalled this week. Analysts are hoping that the release of the Federal Open Market Committee minutes from the July 29 meeting will provide fresh insight. That is unlikely to happen. The July 29 meeting was pretty much a non-event and didn’t offer anything new.
The minutes will have the same result.
Canada releases inflation and wholesale sales data. July CPI is expected to rise 0.4% m/m compared to a 0.8% m/m increase in June, while July Wholesale Sales will rise 10.% from 5.7% in June.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
