The US dollar Canadian dollar exchange rate traded flat for most of the session on Monday, slipping lower into the close. The pair ended Monday’s session down 0.1% at 1.3050 a multi month low.
The dollar was broadly out of favour in the previous session in a risk on environment. President Trump said that the US and China were ahead of schedule with finalising the phase one of the trade deal between the two powers. He said that he expected to sign the trade deal at the APEC meeting in Chile later in November. Hope that a trade deal could be within sight lifted risk sentiment. The US stock market rallied to an all-time high, whilst the dollar eased lower.
In times of increased risk appetite, the safe haven US dollar often moves lower as investors no longer seek out is safe haven properties.
This week brings with it a lot of high impact US macro data and events. Investors will look ahead to the US Federal Reserve monetary policy announcement on Wednesday, US GDP data and the non-farm payroll report on Friday.
Prior to those releases, US consumer confidence data will be in focus today. Analysts are forecasting that US consumer confidence increased to 128 in October, up from 125.1 in September. The US labour market is strong whilst wag growth remains robust, which supports consumer confidence. However, US retail sales fell sharply last month indicating that the US consumer could be starting to crack. Any signs of weakness could weigh on the US dollar.
|Why does poor economic data drag on a country’s currency?|
|Slowing economic indicators point to a slowing economy. Weak economies have weaker currencies because institutions look to reduce investments in countries where growth prospects are low and then transfer money to countries with higher growth prospects. These institutions sell out of their investment and the local currency, thus increasing supply of the currency and pushing down the money’s worth. So, when a country or region has poor economic news, the value of the currency tends to fall.|
Oil Prices Keep Cap on Canadian Dollar
The Canadian dollar was unable to capitalize of the weaker dollar owing to weaker oil prices. Brent tumbled over 1.2% on Monday after rallying 4.5% across the previous week. When the price of oil increases the value of the Canadian dollar increases versus the US dollar. When the value of oil declines the value of the Canadian dollar also declines versus the value of the US dollar. The correlation between oil and the USD/CAD can be directly attributed to the way that Canada earns most of its US dollars — through the sale of oil.
There is no high impacting Canadian data due to be released today. Investors will look ahead to Wednesday’s Bank of Canada’s rate decision.