Friday morning has been more of the same for the Canadian dollar, which has been grinding out small gains against the US Dollar all week, based primarily on ever-growing expectations of interest rate cuts and optimism that the global economy is headed for a soft landing. Both interest rate cuts and avoiding a prolonged and deep recession would be beneficial to the Canadian economy and the Canadian dollar. The Canadian dollar also got a boost from OPEC talks about crude oil production
The economic news has been mixed for the Canadian economy. Thursday’s 3rd quarter GDP report showed the economy shrank 1.1 percent on an annualized basis in the third quarter, while the 2nd quarter numbers were revised to a net growth of 1.4 percent, suggesting that the Canadian economy is not yet in a technical recession (defined as 2 consecutive quarters of negative growth). Finally, Friday morning’s November labour force survey showed that the unemployment rate in Canada ticked up to 5.8 percent.
The financial markets will be riveted to Fed Chair Powell’s speech scheduled for Friday for any hints about the direction of interest rates in the U.S. If Chair Powell expresses even the smallest indication that he does not expect rates to go any higher, expect a further boost to the Canadian dollar versus the US dollar. However, most analysts expect him to be much more pragmatic and indicate that interest rate cuts are still a ways away.