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Canadian dollar update – Tuesday December 31, 2019. CAD stronger on higher oil prices and Phase One deal.

Currency-Market-Update-Tuesday-2
Albert Edwards
by Albert Edwards on December 31, 2019

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD closing 2019 weaker amid year-end re-balancing. Chinese trade delegation will meet in Washington this weekend and the Phase One deal will be signed. The Federal Reserve will remain in a holding pattern for Q1 2020 and this will keep USD under pressure. The Fed cut interest rates three times in 2019 so USD will remain weaker unless forward guidance changes. Global growth is expected to improve in 2020 and this will also affect commodity prices higher. Meanwhile, pending home sales for November increased 1.2% monthly and 7.4% year over year (both higher than expected). FOMC meeting minutes will be the focus for USD this week (available Friday). During the previous meeting, policymakers said the current stance of monetary policy was appropriate to support sustained growth, strong labour and inflation near the 2% target.

Canadian dollar highlights:

CAD remains strong supported by higher oil prices and trade optimism. Crude oil prices increased above $62.00 per barrel (highest since September) due to easing concerns about the trade war. China’s top trade negotiator Liu He will sign the trade deal soon and positive economic data from China also increasing oil demand. Due to year-end flows, USD/CAD rate could fluctuate today, while the rest of week will be stable. Manufacturing data for December available on Thursday (expecting 51.9 reading) and Bank of Canada Deputy Governor Carolyn Wilkins speaks on Friday.

Euro highlights:

EUR stronger to end 2019 mainly due to USD weakness. Although the Eurozone has improved during the past month, there is still concerns about economic growth. The European Central Bank confirmed that Manufacturing activity is recovering, and global growth is stabilizing (after weakening most of 2019). However, in order to maintain a 2% inflation target, President Christine Lagarde may lower interest rates and add more quantitative easing. Lastly, another Brexit extension is possible in Q1 2020 and will affect EUR lower.

British pound highlights:

GBP firm to end 2019 as Prime Minister Boris Johnson still intends to end the Brexit Transition at the end of 2020 and trade negotiations to start in February 2020. European Union Trade Commissioner Phil Hogan is not optimistic Johnson will depart as suggested. GBP will be vulnerable to start the new year until more trade clarity with the European Union.