The Canadian dollar inched higher overnight, despite a somewhat risk-averse environment. Canadian dollar traders were digesting today’s Bank of Canada monetary policy meeting and Governor Stephen Poloz’s press conference.
Back in the summer, analysts were forecasting that the BoC would cut rates in October. It didn’t happen. They penciled in a December cut which has since been erased. They now expect the BoC to leave rates unchanged in the first quarter of 2020. The BoC, along with the rest of the world’s major central banks, blamed trade tensions as the critical reason for downside risks to their economic outlook. Those tensions have not abated, but there are rumours that a U.S./China Phase-One deal is close. If so, the BoC will be reluctant to alter monetary policy at this juncture.
The Canadian dollar outperformed the Antipodean currencies overnight, despite the plunge in oil prices. West Texas Intermediate dropped from $58.15 U.S./barrel to $55.10 U.S./b after the American Petroleum Institute said that U.S. crude inventories fell by 3.7 million barrels in the week ended November 29. The drop was exacerbated by President Trump suggesting that a trade deal would not be signed until after the U.S. elections in November 2020. Prices recovered and touched $57.12 in Toronto trading, on a positive trade story.
A Bloomberg article claimed that despite the noise and the hostile rhetoric, China and the U.S. trade negotiators were very close to agreeing on the amount of tariffs that would be rolled back in a Phase 1 deal. The article also said the negotiators were striving to have the deal completed before the December 15 tariff increase goes into effect.
The British pound was the best performing currency overnight. GBP/USD traded steadily in a $1.2984-$1.300 range in Asia and then exploded higher during the European session, triggering stop-loss buying on the break of $1.3020 and rising to $1.3082 in early Toronto trading. Expectations for a solid Conservative party majority which reduces the risk of a no-deal Brexit and higher than expected Services November Services Purchasing Managers’ Index data exacerbated the rally.
EUR/USD is still looking for direction. The rally from the $1.1000 low last week has stalled at 1.1090 as dovish European Central Bank monetary policy contrasts with steady Fed policy. Traders are hoping that new ECB President Christine Lagarde will shed light on the outlook on December 12.
USD/JPY has been whipped about ever-shifting risk sentiment. Prices dropped in Asia as traders feared a more prolonged U.S./China trade negotiation because of Trump’s earlier comments. Those losses were reversed in Europe following the Bloomberg article suggesting a deal was still close.
Today’s US data includes Institute for Supply Management non-manufacturing PMI and ADP employment reports which will be overshadowed by Trump tweets and trade news. The Bank of Canada meeting was the Canadian highlight.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians