The Canadian dollar is rangebound no more. Prices soared through the top of the USD/CAD $1.3040-$1.3240 band that contained price action since October 11 yesterday and continued to climb overnight. That move is a sharp contrast to the move that occurred immediately following Tuesday release of the Canadian Manufacturing Shipments report. September shipments were expected to drop 0.6% m/m. The drop of just 0.2% surprised traders and USD/CAD dropped to 1.3190. However, the details were a tad less stellar, and the sellers became buyers, lifting USD/CAD to 1.3220.
Prices accelerated around lunchtime due to dovish comments from Bank of Canada Deputy Governor Carolyn Wilkins. She addressed the Montreal International Finance Club, speaking about "Financial Uncertainty in an Uncertain World." Her comments about how the BoC would respond to an economic downturn and financial stress triggered by bad news on the trade front, sent USD/CAD soaring. She said "Our policy interest rate may be relatively low now, but at 1.75% we still have room to manoeuvre. And, we have other options in our tool kit, such as extraordinary forward guidance and large-scale asset purchases." If traders were not thinking about BoC rate cuts in December, they sure were after her speech.
In addition to the domestic influences undermining the Canadian dollar, the loonie also suffered from a downturn in risk sentiment. Traders are concerned that the U.S./China trade talks have stalled and President Trump’s repeated threats to raise tariffs even higher if a trade deal is not reached, didn’t help sentiment. Even worse, the U.S. Senate passed a bill, "The Hong Kong Human Rights and Democracy Act," which China sees as meddling in its internal affairs. The Act requires the Senate to certify annually as to Hong Kong’s autonomy from China to maintain its special trading status. Beijing was livid and summoned some U.S. embassy officials to express their dissatisfaction.
FX risk sentiment took a hit on the news. The Japanese yen rallied, and the commodity currency bloc was sold.
The U.K. leaders debate between Prime Minister Boris Johnson and Labour’s Jeremy Corbyn was considered a draw. That was a bit of bad news for GBP/USD, which dropped from $1.2929 to $1.2888 as the risks for another minority government rose.
Today, Canadian dollar traders are awaiting the release of October inflation data. Analysts expect headline CPI to have risen 0.4% m/m.
The minutes of the October 30 FOMC meeting are due this afternoon.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
