USD/CAD - Dollar Hammered and Still Hurting

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The Canadian dollar is in worse shape than it was at Friday’s close. The currency got crushed on news that Q4 Canadian Gross Domestic Product was far weaker than forecast, rising just 0.4%. Economists were expecting a gain of 1.2%, y/y. Statistics Canada erred and released the report about 25 minutes ahead of schedule. Lucky traders got the news early, and USD/CAD started climbing twenty minutes ahead of the scheduled release. Prices soared, and USD/CAD gained 1.4% as of this morning’s open in Toronto.

The details of the GDP report were as weak as the headline implied and it was the slowest quarterly growth in two years. However, the Canadian dollar’s reaction to the data appears to be a tad overdone. The steep drop in oil prices led most economists to predict a weak quarter. Also, the data is more than two months old, and since them, West Texas Oil prices have recovered, rising 32% since Christmas Eve. Canadian employment data has been better than expected as well. The Canadian GDP data ensure a very benign Bank of Canada policy statement on Wednesday.

The Canadian dollar opened in Asia with a tiny gain compared to Friday’s close. That’s because Asia markets started with a "risk-friendly" tone, sparked by China/U.S. trade talk headlines. There were many reports that the two nations were close to coming to a trade agreement. China reportedly agreed to lower tariffs on a host of products which included agriculture, chemicals, and autos. In turn, the U.S. would remove all sanctions and tariffs. If so, there is speculation that President Trump and President Xi Jinping will meet near the end of this month.

The Canadian dollar was bought, alongside the other majors after President Trump complained about Fed Chair Jerome Powell. He said Powell "likes a strong dollar" and "likes raising rates." The selling didn’t last as traders concluded his comments were just "noise."

The U.S. dollar rallied strongly across the board on Friday supported by better than expected U.S. economic data, and U.S./E.U. trade concerns. It had a mixed overnight session to start the week. EUR/USD traded lower after euro-zone data missed forecasts. Traders are also concerned about another dovish European Central Bank meeting on Thursday.

GBP/USD drifted lower in early Toronto trading. Weaker than expected U.K. Manufacturing Construction Purchasing Managers Index combined with Brexit concerns weighed on the currency pair. USD/JPY was underpinned by the minor shift into riskier assets and by firmer U.S. Treasury yields.

The data cupboard is empty this morning. Canadian dollar direction will be governed by general U.S. dollar sentiment, which in turn will be dictated by Wall Street moves.

Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
Learn how KnightsbridgeFX can help you save up to 2% when buying or selling US dollars compared to your Canadian bank’s rates – click here to compare bank rates