The Canadian dollar is trading on a firm note and back to levels last seen on October 30. A confluence of events occurred to underpin the currency and yesterday’s domestic inflation report was just the latest development.
Statistics Canada reported that Core Consumer Price Index rose 2.2% in November. The result was exactly as forecast by the Bank of Canada and helps to validate its decision to leave interest rates unchanged while adopting a "wait-and-see" approach. The Canadian dollar got a bit of lift from the news on the belief that the inflation reading reduced the chances for a rate cut for the foreseeable future.
The Canadian dollar is also supported by an improvement in the risk sentiment tone. The anticipated China/U.S. Phase 1 trade agreement points to increased global growth and business investment as the proverbial "downside risks" dissipate. Yesterday, China announced that it was introducing new tariff exclusions to some U.S. products. However, the agreement has yet to be signed, and that may be tempering some enthusiasm. Last June, U.S. and China officials were about to meet to sign a deal, then everything fell apart. Both sides got into a huff and started trading new tariffs. It could happen again.
The Bank of Japan monetary policy meeting just ended with rates and policy left unchanged. BoJ Governor Kuroda warned of downside risks still existing which require a monetary policy with an easing bias. The results were largely expected, and USD/JPY trade continued to consolidate earlier gains from rising U.S. Treasury yields.
The Australian dollar got a boost after the domestic employment report revealed a surge in jobs. Australia added 39,900 new jobs, but the details were a tad less rosy. 35,700 of those jobs were part-time. The New Zealand dollar tracked AUD/USD moves but stayed in a tight range.
The Bank of England left interest rates unchanged at 0.75% as expected. Once again the vote wasn’t unanimous. Two officials voted for rate cuts. The dissenters were concerned about soft economic and slowing employment growth. The big story was that some hedge funds were able to hack into the BoE’s press conference feed, in hopes of gaining an advantage from latency.
EUR/USD dropped along with GBP/USD and is trading int Toronto at its overnight lows. The only news of note was that Sweden’s Riksbank ended their negative interest rate policy, increasing its benchmark repo rate to 0.0% from -0.1%.
The Canadian dollar will continue to track broad U.S. dollar moves today and continue to garner a little support from firm West Texas Intermediate (WTI) oil prices.
