The Canadian dollar is underpinned by the Bank of Canada’s Business Outlook Survey (BOS). The quarterly report, released yesterday, suggested that businesses were very positive about the Canadian economy. The firms in the survey expect sales growth to increase further with widespread reports of better sales indicators for domestic and foreign customers. The report noted that capacity pressures remained elevated resulting in many firms reporting increased investment spending.
The survey was conducted before Canada, and the U.S. announced the new United States-Mexico-Canada agreement on trade, suggesting that the survey would have been even more upbeat had the trade concerns been eliminated.
The BOS findings all but guaranteed a 0.25% BoC rate increase at the October 25 policy meeting. More importantly, it suggested that the pace of future rate hikes may be increased, leaving the door open to a move in December or January 2019.
The Canadian dollar gained nearly one cent against the American dollar following the BOS and spent the overnight session consolidating the gains.
Geopolitical issues, equity market concerns and the ongoing U.S./China trade tiff are acting as a drag to further Canadian dollar gains.
U.S./Saudi Arabia tensions have been dialed back after President Donald Trump said he spoke to Saudi Arabia King Salman who denied involvement in the murder of the journalist. Trump suggested it was "rogue intelligence officers" who were responsible. U.S. Secretary of State Michael Pompeo paid a visit to King Salman today to further calm the waters. The easing of tensions led to a drop in oil prices as well.
The U.S./China trade spat is keeping financial markets on their toes. Trump has yet to follow through on his threat to slap more tariffs on another $267 billion of Chinese imports. China’s Ambassador to the US Cui Tiankai told FOX news they are unsure about who is even running US trade policy and vehemently denied interfering in U.S. elections.
On the other side of the world, the United Kingdom and European Union Brexit negotiations have injected volatility into FX markets. It is crunch time for a decision of how Brexit will occur. The U.K., E.U. and Ireland cannot agree on how the Irish border will be treated. Politicians were working overtime to get a deal in place by Thursday’s E.U. Summit. Headlines about the discussions have triggered broad swings in GBP/USD which occasionally lead to contagion moves in other G-10 currencies.
Canadian dollar traders are biding their time until Friday’s retail sales and inflation reports are released. The risk is far better than expected data, which if that is the case, will fuel additional Canadian dollar gains.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
