The Canadian traded with a negative bias yesterday and consolidated those losses overnight. Bank of Canada Governor Stephen Poloz held another one of his "fireside chats" in Vancouver yesterday. His remarks were pretty tame, but not everyone agreed. Some traders felt they were a tad more dovish than expected, especially when he said: "plenty of uncertainty remains around the implications of the US-China agreement for Canadian exports and around whether any more of the new tariffs can be rolled back." The Canadian dollar dropped with USD/CAD rising from $1.3040 to $1.3103, but prices retreated into the close.
The U.S. dollar is poised to finish the week with gains against the major G-10 currencies, led by a 1.48% rally against the Japanese yen. The Canadian dollar languished in the middle of the pack, losing 0.79% since the Toronto open on Monday.
Gold and oil prices have reversed their entire gains following the U.S. drone strike that killed Iran General Qasem Soleimani and Iran’s retaliatory missile strike on US military bases in Iraq. The Australian dollar was the biggest mover overnight, and the only currency to gain against the U.S. dollar. AUD/USD climbed to $0.6881 from $0.6852 after November retail sales rose 0.9% m/m compared to the 0.4% forecast. AUD/USD could extend gains further if today’s U.S. employment report is disappointing.
U.S. non-farm payrolls are expected to see some "payback" after the November data surprised to the upside with a gain of 266,000 new jobs. Forecasters are predicting 164,000 jobs for December. If the results are as expected or lower, it will reinforce the Fed’s “steady as she goes” monetary policy outlook.
Canada employment was also on tap. Analysts are also looking for payback. Canada lost 71,200 jobs in November. Those results may have been skewed by the impact of the October election. The forecast is for a gain of 25,000. The combination of weak domestic results and a robust U.S. payroll print would sink the Canadian dollar.
FX markets were relatively quiet in Europe. GBP/USD saw a bit of excitement following comments from Bank of England policymaker Silvana Tenreyro. She said she would be inclined to vote for a rate cut if the economy remains sluggish and believes that the economic risks are tilted to the downside. GBP/USD bounced about int a $1.3050-90 range during her speech.
EUR/USD traded in a narrow band and is sitting near the bottom of its overnight range in early Toronto trading. Dovish European Central Bank monetary policy and bearish technicals are weighing on the currency.
USD/JPY continues to be supported by safe-haven trade unwinding and firm U.S. Treasury yields. However, failure to break resistance in the 109.80 level may spark a profit-taking sell-off.
The Canadian and U.S. employment reports will dictate FX market direction today, but regardless, there is a riskoff profit-taking fueled U.S. dollar selling ahead of the weekend.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
