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Canadian dollar update – Tuesday February 11, 2020. All eyes on the Fed and BoC while risk-off sentiment persists.

Canadian dollar update – Tuesday February 11, 2020. All eyes on the Fed and BoC while risk-off sentiment persists.
Albert Edwards
by Albert Edwards on February 11, 2020

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD stronger as the economic impact of China’s coronavirus is affecting Asian and European stocks. China’s Producer Prices increased 0.1% and consumer prices rose 5.4% yearly; meanwhile, inflation increased the fastest since October 2011 as factories restarted work following the Lunar new year holiday. However, the total number of confirmed infections and fatalities from the virus increased. Markets will focus on Federal Reserve Chairman Jerome Powell’s semiannual monetary policy report to the House today and the Senate tomorrow. Powell noted some risks to the economy were receding previously. A dovish Powell may put pressure in USD.

Canadian dollar highlights:

CAD weaker and defensive, despite positive housing and labour data last week. Housing starts in January increased 9.8% annually (higher than expected) while building permits also improved by 7.4% in December. Increased full-time work and higher wages from last week’s jobs data confirmed employment improved for the second straight month. However, CAD strength has been limited due to the virus causing market uncertainty and the fear of a global slowdown. Bank of Canada Governor Stephen Poloz speaks tomorrow.

Euro highlights:

EUR weaker and near the 2019 low as persistent coronavirus concerns lift the greenback and safe-haven assets (gold, JPY). EUR will remain defensive and vulnerable to geopolitical events, even though recent economic data was better than expected. European Central Bank President Christine Lagarde speaks today. During her first meeting last year, Lagarde said “Euro area growth remains weak” and a rate cut was expected to boost the economy; however, the central bank remained stable.

British pound highlights:

GBP remains vulnerable due to increased tensions with the European Union on trade talks. The European Union may demand for unaltered access to U.K. fishing waters after Brexit and this will not be supported by Prime Minister Johnson. After the Conservative majority election victory last year, GBP strengthened; however, the pound has been vulnerable since the Brexit deadline passed last month. All eyes on December GDP today (0.6% expansion yearly expected). Growth rate for Q4 also expecting 1.1% yearly expansion today.