USD/CAD - Canadian Dollar Seeks Direction

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The Canadian dollar tried to rally last week but failed. Slightly dovish comments by Bank of Canada Governor Stephen Poloz combined with broad-based U.S. dollar demand against the major G-10 currencies and a sharp drop in West Texas Intermediate oil prices, fueled Canadian dollar selling.

Canadian dollar bulls hoped for a reprieve from Friday’s Canadian employment report. They got one. The Labour Force Survey showed Canada added 35,200 jobs, beating the forecast for a gain of 25,000, and even better the gains were full-time. At the same time, the U.S. non-farm payrolls report disappointed traders. The consensus forecast was for a gain of 164,000, but the result was only 145,000. Also, Average Hourly earnings were weak, rising just 0.1% m/m. The two reports fueled Canadian dollar buying, but the demand quickly faded.

The Bank of Canada releases its quarterly Business Outlook survey this morning. Traders will be looking for insight from this report to gauge BoC’s monetary policy intentions at the end of the month. There is a risk that soft Canadian data in November and December may have offset positive sentiment from the announced US/China Phase 1 trade deal. If so, the Canadian dollar would be vulnerable to downside pressure as it would suggest a dovish BoC monetary policy decision.

The Canadian dollar popped at the Asia open, but those gains evaporated quickly. Asia traders bought the commodity bloc currencies on a wave of optimism ahead of Wednesdays Phase 1 trade deal signing. However, the AUD/USD and NZD/USD rally stalled and the gains were erased by the Toronto open.

USD/JPY managed to extend Friday’s gains overnight. Japan was closed for a holiday, but steady to firm US Treasury yields and the improved risk sentiment tone underpinned the currency. USD/JPY technicals are also bullish looking for a break of 111.00 to extend the rally to 110.60.

The European session was a tad less upbeat than that of Asia. Sterling was a big reason for that. Bank of England Monetary Policy Committee member Gertjan Vlieghe suggested that U.K. interest rates could easily be cut this month, echoing dovish comments from Governor Carney and others. However, it was weaker than expected December Gross Domestic Product data which knocked GBP/USD for a loop, sending down to $1.2967 from $1.3047.

EUR/USD trading was a tad more subdued with prices locked in a $1.1113-35 band. There are large option strikes between $1.1100-1.1130 expiring today which have hampered trading.

Other than the BoC’s Business Outlook Survey, there isn’t any U.S. or Canadian economic data of note, available today.

Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
Learn how KnightsbridgeFX can help you save up to 2% when buying or selling US dollars compared to your Canadian bank’s rates – click here to compare bank rates