The Canadian dollar strengthened versus its US counterpart for the fourth straight week last week. The Canadian dollar hit a 7-week high versus the US dollar before closing the week down -0.15% and closing at 1.3148. The US dollar is edging higher as trading begins for the new Christmas holiday shortened week.
Demand for the US dollar was softer at the start of the previous week, picking up as the week progressed, owing to solid US economic data and lingering concerns over the signing of the US — China phase one trade deal.
US GDP, PCE inflation and consumer confidence data points all beat analysts ‘s expectations, boosting optimism that the US economy is starting to recover from a recent slow patch. This means that the Fed could be less likely to continue its rate cutting cycle in 2020.
There are still several data points worth watching this week. Those include US new home sales which will be released today whilst durable goods orders will be released on Tuesday. Trade headlines will also continue to drive movement in the US dollar. China’s announcement that it will cut import tariffs on more US products could put pressure on the greenback as investors no longer seek its sage haven properties.
Canadian GDP Growth of 0.1%?
Despite advancing to its strongest level versus the US dollar since the end of October, the Canadian dollar was unable to hold onto those that strength following disappointing retail sales data. Retail sales unexpectedly fell in October, declining for the first time in four months. According to Statistics Canada, retail sales declined -1.2% in October. Analysts had been expecting a gain of 0.5%.
The weak retail sales report is just the latest in a aeries of disappointing economic data releases from Canada, prompting investors to believe that the Bank of Canada could be forced to cut interest rates. The BoC has kept its overnight interest rate unchanged for over a year, despite central banks across the globe easing policy.
The prospect of an interest rate cut by the BoC had declined in recent weeks, however it is now sitting at around 50% compared to 25% prior to the data release.
The upcoming week has only one high impacting Canadian economic data release and that is the Canadian GDP reading today. The country has shown slow growth of just 0.1% month on month, the same figure, which is projected today, A weak reading could drag on the Loonie as it boosts rate cut expectations further.