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Canadian dollar update – Friday January 3, 2020. USD recovering after year-end demand and all eyes on BoC Wilkins.

Albert Edwards
by Albert Edwards on January 03, 2020

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD still defensive after a trade truce with China and the Phase One deal will be signed on January 15 (already priced in). Expectations that the Federal Reserve will remain patient regarding monetary policy also affecting USD. Year-end demand for USD is currently supporting the greenback after dropping nearly 2% in December (and the lowest since October 2018). Equities continue higher but Treasury Yields have also dropped. Meanwhile, the Manufacturing Index for December was 52.4 reading (versus 52.5 expected and previously 52.6). All eyes remain on the Fed and trade developments. The election is in November and more tariffs in 2020 would risk lowering stocks and restore risk-aversion. 

Canadian dollar highlights:

CAD firm and continues to be supported by higher oil prices and the Phase One trade deal. Increased global demand may offset the supply surplus in 2020, and this will also send prices higher. Manufacturing Index for last month narrowly missed contraction at 50.4 reading (from 51.4 previously in November and lower than expected 51.9). New business declined (in the automotive and energy sectors) and this was the lowest reading since August. Bank of Canada Deputy Governor Carolyn Wilkins will speak in San Diego discussing “Women in Central Banking”. Markets will be monitoring for any clues when the central bank plans to cut interest rates in 2020.

Euro highlights:

EUR stable due to USD weakness the past week as markets return and reopen positions. The Eurozone economic outlook has improved during the past month due to Brexit optimism. However, Eurozone Manufacturing Index for December was 46.3 reading (from 46.9 previously and expected 45.9). This is the eleventh consecutive month of contraction due to Brexit risks. Meanwhile, manufacturing in Germany was revised higher last month and the economy is slowly improving. All eyes on Consumer Prices in Germany and France available today and the unemployment rate for Germany.

British pound highlights:

GBP lower to start 2020 after Brexit risks increased. Prime Minister Boris Johnson will negotiate trade agreements with the European Commission. Manufacturing in December was 47.5 (versus 47.4 expected and previously 48.9). Production declined due to global trade concerns. The Brexit deadline is January 31 and may need another extension.

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