USD/CAD – Canadian Dollar Gets Rating Agency Bump

The Canadian dollar is drifting higher in early Toronto trading after finding a bottom in early Asia trading. USD/CAD closed at $1.3074 and climbed to $1.3087 in Asia before sliding steadily to $1.3050 in Toronto. The Canadian dollar demand is fueled by broad U.S. dollar weakness against the commodity currency bloc, thanks to modest gains in oil and gold prices.

The Canadian dollar may have received a bit of a lift after Moody’s rating agency affirmed Canada’s Aaa rating, maintaining a stable outlook.

Moody’s said it reaffirmed the rating because (1) Canada’s high economic strength and a governance framework fostering very strong policy effectiveness, affording its credit profile a very high degree of resilience to shocks, including the current coronavirus pandemic.

(2) High debt affordability, supported by historically low interest rates, mitigates the impact of this year’s sharp rise in public sector indebtedness on the country’s fiscal strength.

The agency noted, “According to the rating agency’s forecast, the general government debt burden will rise to about 104% of GDP in 2020, up from 79% in 2019, and remain around that level until gradually declining over the medium term as the government advances fiscal consolidation measures.”

And therein lies the problem. Moody’s did not say which government would advance fiscal consolidation.

Canada September retail sales are expected to rise 0.2% in September. The results should have little bearing on the currency unless they are exceptionally stronger or weaker. The short-term outlook for the Canadian dollar is for continued gains. USD/CAD could drop to $1.2950 on a decisive move below the $1.3020-40 support zone. GBP/USD continues to hover near the top of its recent range.

Traders are quite hopeful that a heavily-diluted, Brexit deal will be announced as early as Monday, allowing both sides to declare victory. Prices were also underpinned by U.K. retail sales which rose 1.2% in October, easily beating the forecast for no gain.

EUR/USD is struggling to make gains despite modestly broad-based, bearish U.S. dollar sentiment. European Central Bank policymaker Luis de Guindos warned that Euro-area Gross Domestic Product would be negative in Q4.

The U.S. economic data calendar is empty.

Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians

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