The Canadian dollar continues to be pressured by the Bank of Canada’s dovish monetary policy outlook. However, progress with the U.S./China trade talks and a rebound in oil prices, are limiting the damage, for the time being.
The Canadian dollar survived its post-U.S. employment report plunge and managed to recoup all of those losses by the close of business on Friday. USD/CAD jumped to 1.3192 from 1.3160 when the U.S. non-farm payrolls data was better than expected, gaining 128,000 new jobs while upwardly revising the August and September results. That positive sentiment was tarnished when the October Institute for Supply Management Manufacturing Purchasing Managers Index data was a tick less than expected, and still showing the euro-zone economy contracting. The U.S. dollar retreated, allowing the Canadian dollar to close with a tiny gain compared to its opening level.
This week started with Japan closed for Cultural Day. The New Zealand dollar outperformed its antipodean cousin thanks to a combination of Australian economic data and New Zealand trade news. New Zealand Prime Minister Jacinda Ardern announced an upgraded free trade agreement with China. The new deal will reduce compliance costs for NZ companies and make exporting to china, easier. It gives China preferential access to 99% of NZ wood and paper trade. NZD/USD traded higher on the news as disappointing Australia Retail Sales data were pressured AUD/USD.
USD/JPY extended Friday’s gains rising from 108.19 to 108.42, in part because of improved risk sentiment following U.S./China trade developments. Officials from both governments suggest that progress toward an imminent signing of the Phase 1 agreement. U.S. Trade Representative Robert Lighthizer said that trade discussions are continuing at the Deputy level, and the South China Morning Post reported China might be willing to make additional compromises. Sunday, U.S. Commerce Secretary Wilbur Ross hinted that U.S. companies might be issued licenses to sell to Huawei. The news helped to underpin the Canadian dollar.
Oil prices soared on the upbeat tone to the trade talks. West Texas Intermediate climbed to $56.59 U.S./barrel by today’s Toronto opening after touching $54.15 on Friday.
EUR/USD traded sideways, albeit with a modestly positive bias. Eurozone Manufacturing PMI data was a tad better than expected at 45.9, although results below 50 suggest the economy is contracting. Christine Lagarde makes her inaugural speech as President of the European Central Bank (ECB) today. She is unlikely to contradict the official ECB view.
GBP/USD is adrift in a sea of uncertainty ahead of the U.K. elections and Brexit. U.K. Construction PMI was a tick better than expected at 44.2. (forecast 44.0)
There are not any major U.S. or Canadian economic reports due today. Wall Street will be focused on the Aramco IPO.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
