The Canadian dollar is making its way slowly lower, guided by a downtrend channel that has been in place since October. The currency has fallen off the radar screens of many traders around the world ever since Canada, Mexico and the United States came to a new agreement for trade. Those traders are watching U.S./China trade talk developments, U.K. politics and Brexit and the European Council’s budget debate with Italy and lately, France.
The European Central Bank meeting on Thursday didn’t provide markets with any surprises. The ECB formally ended their quantitative easing bond-buying program and left interest rates unchanged. Some analysts were hoping that ECB President Mario Draghi would provide hints to 2019 monetary policy. He didn’t. He was his usual dovish self, which served to cap EUR/USD strength which, by default, limited Canadian dollar gains.
Traders were also focused on U.K. Prime Minister Theresa May’s trip to meet the European Council. She had scored a victory the day before when she survived a "no-confidence" vote and met with the E.U. to see if members would improve her Brexit deal. They didn’t have any interest. GBP/USD slipped on the news.
Canadian dollar traders were not too bothered by U.K. political developments but they took note of Chinese data. China November Retail Sales and Industrial Production reports were both weaker than expected. Retail Sales rose 8.1 %, below the 8.8% y/y forecast. Industrial Production rose 5.4%. Forecasters expected a 5.9% rise. The weaker than expected data was seen as evidence that the U.S./China trade war was starting to take a toll and that future reports may be even weaker.
AUD/USD and NZD/USD plunged on the news, but the Canadian dollar reaction was minimal.
There is a lot of U.S. data on tap today headlined by the November Retail Sales report. The forecast is for a gain of 0.2% m/m while ex-autos will rise 0.3% m/m, which is far weaker than the October results of 0.8% for the headline and 0.7% for ex-autos. The steep plunge in oil prices in November is behind the weakness. Better-than-expected Capacity Utilization, Industrial Production and Business Inventories data will offset the sting from the weak Retail Sales numbers.
Traders are looking ahead to the December 19 Federal Open Market Committee meeting. This meeting comes with updated projections and a press conference. Fed Chair Jerome Powell appeared to take a dovish turn in recent comments and speeches which led to many economists downgrading their 2019 rate hike forecasts. FX market reaction could be violent as the meeting is so close to Christmas and year-end that liquidity could be a problem.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
