The Canadian dollar is drifting lower ahead of tomorrow’s release of January Gross Domestic Product data. The forecast is for a modest improvement from -0.1% to 0.0%, which in the big scheme of things, is rather pathetic. Q4 ended on an ugly note, and some analysts believe January could start similarly. Yesterday, data showed January Merchandise Trade deficit narrowing to $4.25 billion from $4.82 billion, but that was less than expected. That result suggests Q1 GDP could be a tad worse than forecast.
A drop in oil prices managed to undermine the Canadian dollar as well. WTI oil fell from a peak of $60.20 U.S./barrel to a $58.80 U.S./b on Wednesday after the Energy Information Administration (EIA) reported that U.S. crude inventories rose 2.8 million barrels in the week ended March 22.
Broad-based U.S. dollar demand further eroded the Canadian dollar. European Central Bank President Mario Draghi hinted that euro-zone interest rates could stay unchanged beyond the end of 2019 which undermined EUR/USD and led to buying of U.S. dollars across the G-10 major currency spectrum. The U.S. dollar closed the Toronto trading session with small gains across the board
Overnight, FX markets were distracted by U.K. politics and wide price swings in GBP/USD. Prime Minister Theresa May’s announcement that she would resign her position if the MP’s passed her Brexit deal was initially seen as a good sign for sterling. Prices rallied to $1.3260 just before yesterday’s close. There were eight votes on a series of motions to facilitate a Brexit deal, and all of them failed miserably. GBP/USD plunged to 1.3127.
U.S./China trade talks resume in Beijing today. Analysts believe that both sides are motivated to get a draft of a deal ready to sign before China President Xi Jinping returns to the U.S. in April. There are reports that China is making concessions on key issues like forced technology transfer. More talks are scheduled next week in Washington. If the headlines suggest that the two sides are close to a deal, it could spark a shift into risk-seeking trades and give the Canadian dollar a boost, in the process.
Traders are waiting for this morning’s U.S. data which includes Q4 GDP. Analysts are forecasting growth of 2.4%, down from the 2.6% previously estimated. The weaker than expected Retail Sales data gets the blame for causing the drop.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
