The Canadian dollar closed Friday’s session with a small loss compared to its opening level. It was not alone. The rest of the G-10 major currency pairs suffered a similar fate, led by slides in EUR/USD and GBP/USD. Canadian dollar weakness was exacerbated by Retail Sales data exacerbated the Canadian dollar weakness. The results met expectations but were a tad soft.
The Canadian dollar was also on the defensive because of somewhat contradicting speeches by Bank of Canada Governor Stephen Poloz and Deputy Governor Carolyn Wilkins. On Tuesday, Ms Wilkins delivered a dovish statement. She spoke of downside economic risks and said the with the overnight rate at 1.75%; the BoC had plenty of room to cut interest rates. Two days later, Poloz suggested that the BoC wasn’t in any hurry to change its policy stance. He said, “We think we’ve got monetary conditions about right given the situation.”
FX markets opened in Asia on an upbeat tone today. That was in response to U.S. President Trump’s comments on Friday when he said the U.S. and China were close to a trade deal. There were also reports that the two sides were very close to inking a Phase 1 deal and were committed to Phase 2 and a Phase 3 discussions. However, the enthusiasm soured when U.S. National Security Advisor Robert O’Brien said that how events unfold in Hong Long would be an issue.
China may be motivated to resolve the trade dispute. Morgan Stanley analysts predict China’s 2020 Gross Domestic Product would plunge to 5.3% if trade war tensions escalate. On the other hand, a trade deal would suggest better than 6% GDP growth.
GBP/USD rallied in Europe following weekend YouGov polls predicting a majority government for Boris Johnson’s Conservative party. GBP/USD climbed to $1.2883 from $1.2842 and opened in Toronto with a bullish bias.
EUR/USD traded quietly in a $1.1011-1.1031 range with traders looking for a break, so support at 1.1000 to extend losses to 1.0950. The bearish sentiment was exacerbated by a lower than expected reading for German IFO Expectations which was 92.1 instead of the 92.5 that was forecast.
FX activity will be lighter than usual this week because of the U.S. Thanksgiving holiday on Thursday. It is the biggest American holiday of the year, and many market participants will get as early a start to the festivities as they can. There isn’t a whole lot of actionable data on tap either. Canada Q3 GDP growth is due Friday. A significant deviation from the 0.2% m/m September gain could spark a sharp move in the Canadian dollar, because of the holiday-thinned markets.
Canada Wholesale Trade and Chicago Fed National Activity Index are due today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians