Yesterday, USDCAD dipped from 1.3396 down to 1.3351 before climbing back to 1.3407. The pairing would then hold a 1.3380 – 1.3400 range for the balance of the session. Overnight, the pairing held a 1.3375 – 1.3400 range before a quick move up to 1.3419 after the U.S. GDP headline beat estimates. There were some details within the report that could lead to downward revisions for the 2nd and 3rd readings which have caused the USD rally to stall and reverse course this morning. USDCAD has fallen to session lows at 1.3353 as the probability of a December Fed rate hike initially jumped to 80% but has come back down to 70%. USDCAD briefly corrected up to 1.3385 but has since fallen back to 1.3365.
Reassuring results from some of Europe's biggest banks gave financials a boost on Thursday , while higher bond yields underpinned the US dollar. As corporate earnings continued to dominate headlines, growing expectations that the U.S. Federal Reserve will raise interest rates by the end of the year have kept gains in risky assets in check. Markets are now pricing in a 74-per-cent chance that the U.S. Federal Reserve will raise interest rates at its December meeting, according to CME Group's FedWatch tool, following a series of hawkish comments from Fed policy makers. Bets that the Fed will hike rates have driven the dollar to nine-month highs against a basket of currencies this week and have supported U.S. 10-year Treasury yields. The "steepening" of the US yield curve works as a magnet for capital coming at this point in particular out of low yielding environments such as Japan and Switzerland, and these flows will continue to support the dollar.
The CAD is underperforming on the day so far. Weaker crude prices are weighing on the CAD somewhat even though there has been some focus of late on the apparently weaker correlation between the CAD and crude oil prices. Markets around the word, from stocks to metals and bonds, have slowed to a crawl, revisiting lows in volatility that have stood for 2 years. Muted moves just sent a cross-asset gauge of price swing in equities, rates, currency and commodities to the lowest since 2104. That everything should so quiet at once just before the US election is especially alarming to market watchers who see threats stretching from Washington to Beijing. Investors appear to be coming to terms with the inevitability of the Fed interest rate increase in December, which is now at a 73% chance of a hike by year up, up 10% from a week ago.
The S&P 500 hit a two-week high on Monday, helped by strong earnings, while a flurry of acquisitions indicated corporate America continues to see untapped value in the market. Global stocks were also higher on Tuesday as upbeat economic data and signs of a revival in inflation pushed up stocks and commodity prices and kept the US dollar at a nine-month high. Europe had been cheered as Germany's Dax hit its highest level of the year after the closely-watched Ifo survey beat expectations a day after purchasing manager numbers had done the same. The big loser on the day so far is the GBP Pound down over 1% on fresh Brexit uncertainty.
The USD continued to rally on firming expectations of a Fed rate hike, and CAD was the week's big casualty. The currency is in an awkward spot: crude prices have continued strong and that should help the loonie, but the consensus appears to be that weak economic growth will constrain any CAD strength. By example, August Retail Sales came in at -0.1% vs call of +0.3% with ex-autos flat vs call of +0.3%. September CPI came in at +1.8%, spot on the call and unchanged from August. Analysts view the loonie's problem as one of low growth and, unlike other countries, an unlikely prospect of deflation. The Bank of Canada's Monetary Policy Report, released Wednesday morning, had little in the way of surprises, nor were traders surprised by the Bank leaving rates unchanged at the time.
Canada's central bank is sticking with its 2% inflation target for another 5 years, saying the well-established mandate remains the best way to support a weak economy. BoC acknowledged it studied the possibility of raising the target, which theoretically could give more room to add stimulus. The costs of change, however, were deemed too high. Positive US data reports this week should serve to bolster expectation that the Fed will be comfortable nudging monetary policy a little higher in December.
Yesterday, USDCAD climbed from 1.3110 up to 1.3214 before falling back to 1.3170. From there it was a
steady climb to 1.3230 in late North American trade. The CAD has been the worst performing currency
since reaching multi-week highs vs. most currencies after Wednesday's Bank of Canada statement and oil
inventory data. (USDCAD tested 1.3010) The weakness stems from dovish comments from the Bank of
Canada Governor Poloz. USDCAD tested 1.3260 overnight before falling back to 1.3228 ahead of this
morning's data releases. Retail sales missed estimates while inflation data improved from last month. Core
data (used by the Bank of Canada for setting monetary policy) was as expected while headline data missed
slightly. This was enough to send USDCAD up to 1.3350. The previous highs of 1.3314 and 1.3307 were
effectively taken out opening the door for further upside from a technical standpoint. The pairing has since
fallen back to 1.3305 followed by a 2nd run which stalled at 1.3340. We are now near 1.3320.
Stock markets inched higher but the Mexican peso was mixed after the third and final U.S. presidential debate, which was judged to have given no clear boost to Donald Trump's hopes of winning the White House. The peso is seen as the chief proxy for market pricing of the Republican candidate's chances in view of his promises to impose tough limits on immigration. It climbed to a six-week high against the dollar in the immediate aftermath of the debate but was down on the day in European trade. A win for Democrat Hillary Clinton next month - now predicted clearly by polls - is also seen as opening the way for a rise in interest rates which a number of U.S. Federal Reserve policy makers have all but promised for December.
As expected, The Bank of Canada announced today that it is maintaining its target for the overnight rate at 0.50%. They commented that the economy is working its way back from shock and that it's on track for a 2nd half rebound on stronger exports. The CAD has dropped since the BoC press conference where they actively discussed adding more monetary stimulus. Meanwhile, oil has broken to its highest level since July after a surprise drawdown in US energy supplies. If crude can hold these levels or close above $52, it sets up a continued rally, maybe even to $60 or better.
Rising commodity prices pulled shares higher on Tuesday and the dollar slipped from a seven-month high as bond yields fell, while sterling briefly strengthened after data showed UK inflation rose by its most in more than two years last month. The weaker dollar helped lift oil and metals prices, lifting commodity related stocks in Europe Asia and North America. Sterling hit a six-day high before retreating, after data showing annual consumer price inflation in Britain accelerated to 1.0 per cent last month from 0.6 per cent in August.
China's September trade data flashed another weak signal for the global economy. China reported a USD 41.99 billion trade surplus for September, compared to a USD 59.60 billion surplus a year earlier and missing market estimates of a USD 53.0 billion surplus. It was the smallest trade surplus since March as exports fell much more than imports.