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Canadian dollar update – Wednesday January 22, 2020. CAD under pressure to lower oil prices and risk-off mood with all eyes on BoC.

Albert Edwards
by Albert Edwards on January 22, 2020

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD stable due to risk-off sentiment after the outbreak of the new coronavirus may affect many travellers during the Lunar New Year holiday. President Trump agreed to a tariff truce with France until the end of 2020 to avoid another trade war during election year. Trump also said the Federal Reserve raised rates too fast and cut too slow. The Fed is expected to remain in hold in 2020 after three cuts last year. Existing Home sales for December expecting 5.43 million/1.3% increase today.

Canadian dollar highlights:

CAD vulnerable as the Bank of Canada is expected to hold interest rates at 1.75% today. Governor Poloz will resign in June and the odds of a rate cut is currently at 40%. The economy has slowed, and household debt continues to be a concern. However, Core Inflation has been near the 2% target for two years. The central bank will also update its outlook with new quarterly forecasts today. Growth was trending lower than 1% for Q4 2019 (versus forecast of 1.3%).

Euro highlights:

EUR stronger after the German ZEW economic sentiment index improved to 26.7 reading in January (the highest since 2015 and higher than expected 15.0). The Phase One trade deal signed is helping improve the economy after Germany’s manufacturing sector was slowing. President Trump said he is confident a trade deal with the European Union will be finalized or he will consider more tariffs on automobiles made in the European Union. Markets will focus on the European Central Bank’s monetary policy meeting tomorrow (no changes expected).

British pound highlights:

GBP stronger after employment increased by 208K last month (versus 110K expected) and wages increased 3.2%. The unemployment rate remained at 3.8% (the lowest since 1975).  This positive jobs data may give the Bank of England reason to hold interest rates; however, markets are expecting a rate cut by the end of month. Currently a 78% chance of a rate cut in March (from 88% last Friday). After announcing the Brexit agreement signed last October, the economy is improving. Markets will focus on the Markit Manufacturing and Services Index reports available on Friday.