The Canadian dollar is back under pressure. U.S. Federal Reserve Chair Jerome Powell’s press conference comments significantly reduced the risks that the Fed would be cutting rates in the near future. It also meant that if a rate cut wasn’t on the horizon, maybe a rate hike was possible. That sentiment renewed demand for U.S. dollars and the Canadian dollar was swamped as a result.
The Bank of Canada’s monetary policy outlook didn’t help. BoC Governor Stephen Poloz reiterated his dovish outlook when he testified before the Senate and House Finance Committee’s this week. That puts his view at odds with the Fed’s which undermined the Canadian dollar.
The monthly U.S. employment report is due today. The U.S. dollar has traded higher for the past 24 hours on anticipation of robust data. The U.S. is expected to have added 185,000 jobs in April a forecast which was tweaked higher earlier this week after the ADP payrolls showed a gain of 245,000 jobs in the same period. The unemployment rate is expected to be unchanged at 3.8%. Traders will be keeping a close eye on the Average Hourly Earnings component which is expected to rise 3.8%. A higher than forecast result would give the greenback an added boost as it points to higher inflation down the road.
Overnight, Asia markets were tranquil. Japan and China were on holiday. The Australian dollar traded sideways after losses against the US dollar yesterday. Traders are looking ahead to next Tuesday’s Reserve Bank of Australia policy meeting. They expect the RBA to maintain their dovish bias.
The New Zealand dollar is in the same boat. The Reserve Bank of New Zealand policy meeting is Wednesday, and there is a risk of a rate cut.
The European FX session was a tad livelier, but just barely. EUR/USD extended the selloff that began on Wednesday when prices peaked at 1.1260. The single currency closed at 1.1172 I in Toronto, yesterday and is trading at 1.1145, the overnight low. Euro-zone inflation data was a tad better than expected. Core Consumer Price Index rose 1.2% in April which is well below the European Central Bank’s target of 2%, which further supported ECB President Mario Draghi’s dovish outlook.
The British pound led the Euro lower. GBP/USD dropped from 1.3042 to 1.2992 in early Toronto trading despite UK Services Purchasing Managers Index returning to "expansion" territory. Markit Services PMI was 50.3 in April, compared to March’s 48.9% result. Brexit worries are an ongoing concern.
In addition to the NFP report, US economic data releases include Institute for Supply Management Non-manufacturing PMI and Wholesale Inventories. A parade of Fed speakers is also on tap.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
