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A more hawkish Bank of Canada and weak US economic data saw the Canadian dollar soar versus its US counterpart. The US dollar Canadian dollar exchange rate dropped over 100 points to a three-week low 1.3191. The Canadian dollar is advancing in early trade on Thursday.
The US dollar trended lower on Wednesday as investors reacted to weak data. Both the ADP private payrolls and the ISM non-manufacturing report missed expectations. The weak macro data comes following soft manufacturing figures earlier in the week. Investors are growing more concerned over the health of the US economy amid the ongoing US — China trade war.
Today is another data heavy day with investors looking towards factory orders, the trade balance and jobless claims to gauge the state of the US economy. Trade is also in focus with optimism of a deal growing.
OPEC Meetings & Ivey PMI Up Next
As was broadly expected, the BoC kept its interest rate unchanged at 1.75% in its final monetary policy decision of the year. The interest rate has remained unchanged since October 2018, despite other central banks across the globe easing monetary policy. The BoC suggested that rate cuts by other central banks in recent months, including the US Federal Reserve, have provided support to the global economy, easing fears of a more pronounced downturn. Canadian inflation is hovering around 2% pleasing the BoC.
The comments and overall tone of the BoC and Governor Stephen Poloz were much more optimistic than they had been at the last rate announcement in October, when it had warned about contagion from the ongoing global trade woes. The door still remains ever so slightly ajar for another rate cut next year. However, the broad view from the central bank was that the global economy was stabilising. The hawkish stance caught investors off guard and boosted the Canadian dollar.
Also supporting the Canadian dollar was the soaring price of oil. West Texas Intermediate surged over 3.5% amid the first decline in US oil inventories in 6 weeks and ahead of the OPEC meeting. The rally boosted the commodity sensitive Canadian dollar.
Today investors will continue digesting the monetary policy meeting in addition to watching the Ivey Purchasing Managers Index. Analysts are expecting to see an uptick in the pmi reading. This would support the BoC’s more hawkish outlook and could lift the Canadian dollar. The price of oil will also be closely monitored as the OPEC+ meeting begins. An extension of the output cut could lift oil and the Canadian dollar.
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