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Canadian dollar update – Friday December 13, 2019. Poloz remains dovish and all eyes on the U.K. election results.

Albert Edwards
by Albert Edwards on December 13, 2019


U.S. dollar highlights: 

USD trending higher again after reaching a deal in principle with China. President Trump previously said he is “Getting very close to a big deal with China” and this caused Treasury bond yields higher. On Wednesday, USD was under pressure after the Federal Reserve kept interest rates unchanged and Chairman Powell expects no changes in monetary policy for 2020. The dovish Fed vote was unanimous after two members voted in November to increase rates. However, a rate hike is still possible at the end of 2020 and the Fed forecasts one increase in 2021 and 2022. Meanwhile, Producer Prices were flat in November (versus 0.2% increase expected) and this confirmed inflation will remain stable. All eyes on Presidents Trump and Xi as risk-on returns and markets wait for Phase One to be signed.

Canadian dollar highlights:

CAD firm after the Bank of Canada Governor Stephen Poloz said he expects global interest rates to remain low for years. Low productivity and population growth will affect the economy in addition to increased debt. CAD strength the past week has primarily been due to higher oil prices, low interest rates and USD weakness. Markets will now focus on next week’s Inflation Rate for November and Retail Sales report for October.

Euro highlights:

EUR stronger after the European Central Bank kept monetary stimulus unchanged. During new President Christine Lagarde’s first meeting, she stated that inflationary pressures as the main reason to remain dovish and growth was revised lower. Meanwhile, Eurozone Industrial Production for October shrank 2.2% yearly (previously revised to -1.8% in September) and this represented the twelfth consecutive month of contraction. All eyes on the U.K. election and the Brexit deadline of January 31, 2020.

British pound highlights:

GBP defensive after the latest polls revealed the Conservative Party’s lead dropped to five points. Jeremy Corbyn’s opposition Labour Party now has 36% support versus Boris Johnson’s Tories at 41%. Markets still fear a hung parliament is possible while still hoping for a Conservative majority. GBP strength the past week has been due to a small Conservative majority already priced in; however, GBP will fall if Johnson has to depend on the Northern Irish Democratic Unionist Party for support. Meanwhile, the chances are low that Jeremy Corbyn becomes the new Prime Minister (with help from the Scottish National Party).