The markets are largely status quo this morning. Equity benchmarks are either at or near record highs. Oil is just off of its highest levels since late 2018. Bond yields…
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The Canadian dollar remains rangebound (up just 0.2% this morning) against USD. While there is not yet any clear direction or trend to the USD/CAD exchange rate, there are some…
The global economic optimism that had propelled stocks around the world to higher levels at the end of 2023 has resurfaced in February, once again driving global stock markets to reach new highs. Similar to the rally at the end of 2023, this surge is also fueled by the potential of Artificial Intelligence (AI). US equities have been at the forefront, with the S&P 500, the Dow, and the Nasdaq 100 closing at all-time highs yesterday. This renewed optimistic economic outlook has led investors to move away from safe-haven assets like the US dollar, which has underperformed. However, the Canadian dollar has not capitalized on the US dollar’s weakness.
The Canadian dollar appears to be taking a breather on Friday after a roller-coaster week. On Tuesday, the Canadian dollar sank significantly against the US dollar after the US CPI number—a closely watched barometer of inflation—came in higher than market analysts had expected. This pushed investors into a more cautious, risk-off stance, favoring safe-haven assets such as the US Dollar, to the detriment of more risk-sensitive currencies like the Canadian dollar. The Canadian dollar hit a two-month low at 1.3586 (USD/CAD).
Inflation in the US was down again in January but came in higher than what market watchers had expected. According to the US Labor Department, consumer prices rose 3.1% in January compared to 3.4% in December. Markets had anticipated the January inflation number to be at 2.9%. The higher-than-expected inflation number put investors in a sour mood and kick-started the latest round of risk-off trading. Stocks fell, Treasury yields rose, and the US Dollar gained against the Canadian dollar.
The Canadian dollar has lost about half a cent against the USD Friday overnight and into Monday morning after reaching a one-week high to end last week on strong Canadian employment numbers. The Canadian dollar was drifting higher throughout the day on improving crude oil prices after OPEC announced that they are ready to adjust prices at any time, which is code for cutting production to increase prices.
The much-anticipated Canadian January jobs data came in at just over 37,000, more than doubling the 15,000 figure market analysts had expected. This helped the Canadian dollar gain approximately 0.25 of a penny against the US dollar. However, because the vast majority of the gains were in the form of part-time employment, accounting for approximately 48,000 jobs, while full-time employment actually fell by just over 11,000 jobs, the USD/CAD pairing quickly stabilized at a new weekly high (CAD/USD low).
The Canadian dollar remained steady against the US Dollar on Thursday, touching a weekly high as investors await the Canadian employment report expected on Friday morning. Economists are expecting the Canadian economy to have added 15,000 jobs in January. A surprise on the upside with more than 15,000 jobs added could lead the Bank of Canada (BoC) to hold off on any rate cuts. However, if the job numbers come in below expectations and disappoint the market, the Canadian dollar could weaken against the US dollar. This would be seen as a further indication for the BoC that rate cuts are imminent, especially compared to the more stable situation in the US.
While Wednesday ‘s decision to hold the Bank of Canada’s key overnight rate at 5% was widely expected, you could argue that the BoC’s shift in tone and messaging was somewhat of a surprise. The BoC acknowledges that the discussion has now ‘shifted’ from whether more hikes are needed to how long to keep rates elevated. However, this still disappointed markets, and the Canadian dollar weakened on the news, falling to a six-week low against the US dollar. In essence, the markets were of the opinion that the BoC will cause unnecessary damage to the Canadian economy by waiting too long to cut rates. The range of predictions for the first rate cut ranges between April and June of 2024. The BoC’s new inflation forecast sees inflation at 3% for the first half of 2024, before falling to 2.5% by the end of the year and returning to the 2% target in 2025.
The Canadian dollar attempted to muster a rebound against the US dollar overnight but quickly sputtered and gave up its modest gains after Canadian retail sales data for November registered weaker than expected on Friday morning.