There is confusion in the ranks of Canadian dollar traders. That's because there is confusion in the senior ranks of the Bank of Canada (BoC). Tuesday, Deputy Governor Carolyn Wilkins delivered what appeared to be a dovish speech. She spoke at length about how the BoC would react to an economic downturn and financial stress arising from worsening conditions in global trade. She specifically pointed to the BoC's 1.75% overnight rate and said, "we have room to manoeuvre." The Canadian dollar sank on the news, and the intraday technicals turned bearish.
Yesterday, BoC Governor Stephen Poloz seemingly contradicted Ms Wilkins. He told attendees to an Ontario Securities Commission conference that although the trade war is hurting investments and exports, the housing and the service sectors have performed well. He said, "So where we sit today is, we're watching this. We think we've got monetary conditions about right, given the situation."
The Canadian dollar rallied, dropping from a USD/CAD peak of $1.3322 to $1.3270 overnight. Broad U.S. dollar strength against the G-10 major currencies prevented the Canadian dollar from fully recouping its post-Wilkins speech losses.
The U.S. dollar is poised to finish the week on an "up" note, having risen against all the G-10 majors, except for the Japanese yen and New Zealand dollar since the Toronto open on Monday.
EUR/USD bounced in a $1.1048-1.1086 range overnight. A mixed bag of euro-zone data led to the single currency probing the bottom of the range. German Q3 Gross Domestic Product rose 1.0% y/y as expected. However, Markit Manufacturing Purchasing Managers Index, at 43.8, was a tad higher than predicted but still very weak. Euro-zone PMI reports were also disappointing. New European Central Bank President Christine Lagarde said that the global economic environment was marked by uncertainty. She also said that monetary policy would be more effective if government policies supported growth.
GBP/USD plunged from $1.2928 to $1.2865 after U.K. Manufacturing PMI hit a post-Brexit low of 48.3. The FX technicals suggest the drop was a much-needed correction, but prices could fall further.
Oil prices have hung on to this week's gains. Prices are supported by speculation Opec and Russia will extend production cuts until March 2020.
The Canadian dollar may see fresh volatility after September Retail Sales data is released. The consensus forecast is for headline Retail Sales at -0.1% while Retail Sales, ex-autos rises 0.1%. Retail Sales have increased for the past three months.
The main U.S. data release is the Michigan Consumer Sentiment Index which is forecast to be unchanged at 95.7. American traders will be looking ahead to next week's Thanksgiving holiday. It is the primary U.S. holiday, and trading may be lighter than usual during the week.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
