USD/CAD: Canadian Dollar Gains Capped By Falling Oil, US Inflation Up Next

The Canadian dollar moved tentatively higher versus the US dollar on Monday. The Canadian dollar US dollar exchange rate declined -0.1% to close at 1.3056. The pair is holding steady in early trade on Tuesday.

In the absence of high impacting US macro-economic data, investors focused on the signing of the US – China trade deal due to take place on Wednesday. After months of wrangling the two powers are expected to sign the phase one trade deal that was agreed in December. The US has also agreed to remove the currency manipulator tag placed on China ahead of the signing, further fuelling the dominant positive mood. Amid the upbeat sentiment, demand for the safe haven dollar dropped.

Today investors will switch their attention back towards the US economic calendar, with the release of US inflation data. Analysts are forecasting that consumer prices increased 0.3% month on moth in December and 2.4% annually. This is a significant jump higher from November’s 2.1% annual increase.

The Federal Reserve have indicated that they will keep monetary policy on hold. The central bank also confirmed that in order to hike interest rates they would need to see a significant and persistent increase in inflation. A strong print could boost expectations of a rate cut, lifting US dollar.

Oil Plunges 1.5% Weighing On Loonie

The Canadian dollar failed to really capitalise on the Bank of Canada’s upbeat outlook. In its latest publication of the Business Outlook Survey, the Canadian central bank noted that business sentiment remained broadly positive in the fourth quarter of the year. The report showed that Canadian businesses are more optimistic than they were last Autumn.

The report also shows that companies continued to report labour shortages, stating their intentions to increase employment. This is good news for the labour market outlook and therefore good news for the economy.

Any gains in the commodity sensitive Canadian dollar have been capped by falling oil prices. West Texas Intermediate slumped 1.5% on Monday, in its sixth straight session of losses as tensions in the middle east ease and amid lacklustre seasonal demand. Investors will continue to follow oil prices closely.

With no high impacting data die today, investors will look ahead to Thursday’s employment change numbers.

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