The Canadian dollar sunk to a fresh six week low versus the US dollar on Wednesday. Canadian dollar dropped to 1.3327, down 0.6% on the day. The Canadian dollar is extending losses in early trade on Thursday.
The dollar trended higher in the previous session as hopes of a US – China trade deal being achieved before Christmas diminished. Optimism is waning, a deal no longer looks as immediate as it did just a few weeks ago. Scepticism over a phase one deal boosted the safe haven dollar’s appeal.
The latest blow to a deal stemmed from the US Senate pushing through a bill supporting the pro-Democracy protesters in Hong Kong. Unsurprisingly, this angered China, who summoned the US Ambassador. China has warned the US before over meddling in what they consider to be domestic affairs. The latest developments will not make reaching a deal any easier. President Trump may sign the bill into law as soon as today.
Dollar investors brushed over the minutes to the latest Fed meeting. There were no great surprises in the deliberations, particularly as Jerome Powell had aired his opinions before Congress last week. In short, the Fed cut interest rates for a third time owing to the slowing global economy. However, policy makers believe that political risks to growth have eased since the end of the summer. They consider policy to be appropriate at its current levels and there were no hints as to the direction of future policy.
Weak Inflation Hits Loonie
The Canadian dollar traded lower on Wednesday following the release of inflation data. Investors sold out of the Loonie following weaker than forecast consumer price growth. On a yearly basis inflation increased 1.9%. Month on month inflation jumped 0.3%, significantly up from the -0.4% decline experienced in September. Core inflation was also 1.9% year on year, which could be considered a weak number by the central bank, sending the Canadian dollar lower.
Whilst macro data weighed on the demand for the Canadian dollar, the price of oil supported it. West Texas Intermediate jumped 3% on Wednesday, preventing the Canadian dollar from selling off further.
Today the Canadian dollars could experience an increase in volatility as investor digest employment figures and a fireside chat by BoC’s Poloz.