The Canadian dollar was on the defensive for much of Tuesday. The US dollar Canadian dollar exchange rate rallied to a high of 1.3322 before dollar weakness kicked in and the pair eased back just below the familiar level of 1.33.
The dollar traded broadly lower in the previous session amid dismal sentiment triggered by President Trump. Trump continued to threaten trade tariffs galore and not just on the Chinese. President Trump’s commented that he is in no rush to complete a trade deal with China and is prepared wait until after the elections next year to agree a deal. His comments poured cold water on hopes of a deal being agreed in the coming weeks.
President Trump also threatened tariffs of 100% on French products worth $2.4 billion in response to France’s digital tax, which the US trade representative’s office consider to be unfairly discriminatory against US technology firms.
Trade headlines will remain in focus today. Investors will also turn towards a slew of US data. The most closely watched will be ISM non-manufacturing figures and ADP private payroll numbers. Any sign of weakness could weigh on demand for the greenback.
No Rate Cut Expected, Yet
Canadian dollar investors are focusing on the Bank of Canada rate decision due later today. The broad expectation is for the central bank to keep interest rates on hold in the final rate announcement of the year. The BoC was one of the few central banks that didn’t cut interest rates this year which has kept the Canadian dollar in the top spot across 2019. However, the big question for Canadian dollar investors is whether BoC President Stephen Poloz will be forced to follow suit sooner rather than later.
Back in October the BoC acknowledged that they discussed a rate cut but decided against it. Fast forward to last week and Canadian GDP showed a widely expected slowdown. The market is not currently pricing in an interest rate cut until next year. Should the BoC adopt a more dovish stance at this meeting, Canadian dollar investors could get a shock. With very few clues as to when the US – China trade dispute may come to an end, the lingering uncertainty, lacklustre growth and weak outlook for oil could all prevent the Canadian dollar from strengthening to any meaningful degree going forwards.