The Canadian dollar has careened in a 200-point range in the past 48 hours. The Bank of Canada, Statistics Canada and U.S. President Trump have taken turns traumatizing traders with comments, data and policy. Said Rahim Madhavji, President of KnightsbridgeFX, a Canadian currency exchange company that helps Canadians get better exchange rates than the banks.
The Bank of Canada issued a policy statement on Wednesday that caught markets by surprise. They appeared to be more confident with their economic and inflation outlook, so much so that they dropped the adjective "cautious" to describe the evolution of future policy decisions. FX traders concluded that not only was a July rate hike a "done deal" but the door was wide open to another rate increase at the September 6 or October 25 meeting.
The Canadian dollar soared on the news until USD/CAD found a bottom at $1.2820 by Thursday morning. Then Statistics Canada got into the act. It reported that Q1 Gross Domestic Product only rose 1.3%, year over year. The market was expecting a 1.7% rise. March GDP missed the mark as well. The 0.3% rise, month over month, was below the 0.4% gain seen in February. The Canadian dollar dropped as fast as it had risen the day before.
USD/CAD climbed from $1.2820 to $1.2992 by mid-day on Thursday, in a rally supported negative developments on the trade front. President Trump announced that he was putting a 25% tariff on steel and a 10% tariff on aluminum imports into the U.S. from the European Union, Mexico, and Canada.
Despite all that negativity, the Canadian dollar only lost 1.0% between April 30 and May 31. The Canadian dollar will be at the mercy of general U.S. dollar sentiment until the middle of next week when more domestic economic data becomes available.
Today, the market is focusing on European political developments and the US employment report. Italian 5 Star Movement and Northern League politicians have managed to form a government which at first glance is a tad less "anti-Euro" That news and a steady Markit Manufacturing Product Managers' Index result supported the euro. Better than expected. U.K. PMI data did the same thing for GBP/USD. The negative U.S. dollar bias gave the Canadian dollar a bit of support in the process.
If this morning’s US non-farm payrolls data handily beats the 188,000 forecast the Canadian dollar will suffer. USD/CAD will test resistance in the $1.3000-$1.3020 area.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians.
