The Canadian dollar is consolidating recent gains. On Friday, the U.S. Bureau of Labor Statistics said non-farm employment rose 304,000, well above the 165,000 that was forecast. The results were likely tainted by the U.S. government shutdown, but even so, it showed that the American economy was chugging along. The U.S. dollar reaction to the news was somewhat subdued, muted in part by last week’s dovish Federal Open Market Committee result. Only the Canadian dollar managed to close Friday with, and that gain was rather impressive.
Canadian dollar traders ignored the U.S. employment report and took their cue from surging oil prices. West Texas Intermediate (WTI) oil climbed to $55.71 U.S./barrel overnight from Friday’s low of $53.37, a 4.4% gain. Prices continue to benefit from improved sentiment around the US/China trade talks. President Trump has praised the trade talk progress and reports that China President Xi Jinping and Trump will meet in Washington later this month sounded encouraging and gave rise to speculation that a trade deal will reignite global growth and oil demand. Also, the Organization of the Petroleum Exporting Countries' and Russian production cuts combined with the latest sanctions against Venezuela and the recent polar vortex are supporting prices. Those higher prices lifted the Canadian dollar through major technical resistance levels which sparked stop-loss demand for the currency.
Canadian dollar traders are re-evaluating their longer-term outlook for the currency pair following the Federal Open Market Committee’s monetary policy U-turn. The Committee issued a somewhat hawkish statement at the December 21 meeting and then delivered an unequivocally dovish statement last week. Fed Chair Jerome Powell said concerns about the impact the U.S./China trade spat, Brexit, and slowing global growth on the U.S. economy argued for being "patient" with rate increases. He didn’t explain why he wasn’t concerned about these same factors in December. Economists quickly scaled back their interest rate forecasts with many only expecting one rate increase in 2019, and that won’t be until December.
The Bank of Canada is in the same boat as the Fed. They won’t be raising interest rates any time soon, but the oil price rally has helped to improve the outlook, somewhat, supported by the 6.7% gain in Consumer Confidence and the 3.0% increase in Raw Material, reported last week.
FX trading action is expected to be on the quiet side this week, especially in Asia, thanks to the Chinese New Year celebrations which last for the next five days. There isn’t much in the way of top-tier U.S. data available. AUD/USD traders will be waiting for the Reserve Bank of Australia monetary policy meeting tomorrow. Americans will be patiently awaiting President Trump’s State of the Union address on Wednesday, U.K. traders are watching MP’s on Brexit and waiting for the Bank of England monetary policy meeting results on Thursday.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
