USD/CAD: Canadian Dollar Extends Gains Into New Year

The Canadian dollar was the best performing major currency across 2019. The Canadian dollar strengthened 4.4% versus the US dollar from its open on January 2^nd, 2019 to the close of trading on 31^st December. The Canadian dollar is extending those gains at the start of trading in 2020.

Demand for the dollar has been soft across the past week amid year end flows and as risk sentiment improves. President Trump confirmed that the US — China trade deal will be signed on 15^th January. Trump will then go to Beijing to commence talks on the second phase.

Strong indications that the phase on trade deal will be signed and formally entered into within the coming weeks has lifted sentiment towards the global economy. As a result, flows out of the safe haven dollar increased, dragging the buck lower.

News that China has cuts its reserve ratio by 50 basis points has also boosted risk appetite across the Asian session at the start of the new year. The move aims to inject liquidity into the market and lower business costs. It has overshadowed data showing that growth in the Chinese manufacturing sector slowed marginally in December.

Today investors will be looking towards US manufacturing pmi data and jobless claims for further insight into the health of the US economy

Top Performer Canadian Dollar Looks To Manufacturing Data

Strength in the Canadian dollar has been due to a combination of factors. Chief among them was the Reserve Bank of Canada’s shift in stance from a more dovish bias towards a neutral bias.

Market participants had widely expected the BoC to cut interest rates at its October monetary policy meeting. It didn’t. Whilst policy makers confirmed that they did discuss an insurance cut, the central bank decided to stay pat on monetary policy, leaving interest rates unchanged. There were mixed messages from the October meeting, however overall analysts deemed a shift in stance from the BoC. This was then confirmed in the December monetary policy meeting where the BoC adopted a neutral tone. The reduced risk of a rate cut underpinned the Canadian dollar.

The Loonie has also benefited from a resilient the labour market and consumer sector. Oil price gains has also offered support to the commodity sensitive Canadian dollar, as the crude oil posted its biggest yearly gain since 2016.

Today Canadian dollar investors will be watching the price of oil closely following US Embassy attack in Iran. Canadian manufacturing figures will also be under the spotlight.

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