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Canadian dollar update – Thursday December 5, 2019. CAD soars after hawkish BoC.

Currency-Market-Update-Thursday-1
Albert Edwards
by Albert Edwards on December 05, 2019

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD weaker and dropped to a four-week low after diminished hopes of the Phase One agreement with China will be confirmed this year. President Trump is willing to wait until after the 2020 elections while China said they are prepared for more tariffs on December 15. Tensions increased further after the House sanctioned Chinese officials over human rights abuses against Muslim minorities. Crude oil stocks dropped by 4.856 million barrels during the week ending October 29th (after a 1.572 million gain previously). Meanwhile, the private sector added only 67K jobs in November (versus 140K expected) to put more pressure on USD.

Canadian dollar highlights:

CAD stronger after the Bank of Canada left interest rates unchanged. Governor Stephen Poloz expressed concerns related to trade conflicts but praised the resilience of the economy. Previously, Poloz was dovish and markets forecasted a rate cut in Q1 2020. However, inflation is near the 2% target, business expenditure is improving, and low mortgage rates are helping the housing sector. The probability of the central bank cutting interest rates has now reduced (while the Federal reserve has also paused). Deputy Governor Timothy Lane will speak today and provide an economic progress report. Governor Poloz speaks again on December 12 in Toronto. Markets will now focus on the OPEC meeting starting today and whether they will extend supply cuts. Unemployment Rate for November expecting 5.5% tomorrow.

Euro highlights:

EUR weaker after Eurozone Services in Spain and Italy dropped below 50 points to confirm contraction (Germany was revised to 51.7 and the Eurozone to 50.6). Next week the central bank will hold its first policy meeting with new President Christine Lagarde. Markets are pricing in a rate cut for Q1 2020 after Lagarde mentioned the inflation target will return to 2% during her introductory statement last month. GDP Growth Rate for Q3 expecting 0.2% increase today while Germany narrowly avoids a recession. Retail Sales for October expecting a 2.2% increase year over year today.

British pound highlights:

GBP stronger as markets are pricing in a Conservative Party victory for Prime Minister Boris Johnson. With only seven days remaining until the election, Johnson has a ten-point lead after the latest poll results. With a majority government, the Tories will have enough seats to pass the Brexit bill through parliament and officially leave the European Union on January 31, 2020. However, if Jeremy Corbyn’s Labour Party improves support, GBP will be under pressure. A Brexit deal may also be priced in and the focus is now on the NATO Summit (hosted by Johnson).  Meanwhile, the Services PMI for November was at 49.3 points (versus 48.2 expected).

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