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Canadian dollar update – Thursday February 6, 2020. Risk appetite returns on virus hope, but CAD still vulnerable.

Canadian dollar update – Thursday February 6, 2020. Risk appetite returns on virus hope, but CAD still vulnerable.
Albert Edwards
by Albert Edwards on February 06, 2020

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD remains firm after better than expected manufacturing data in January and China’s stimulus measures calms markets. China’s central bank cut reverse repo rates by 110bps and added 1.2 trillion yen on liquidity in markets. As a result, equities rebounded higher, but commodities continue lower. Meanwhile, President Trump delivered his State of the Union address last night and will now focus on his re-election in November. The Senate is led by Republicans and will acquit Trump in a vote this afternoon. Meanwhile, December factory orders improved 1.8% (from dropping 1.2% previously in November). USD strength has mainly been due to safe-haven demand during the past week.

Canadian dollar highlights:

CAD weaker after oil prices dropped below $50.00 per barrel. Increased concerns about lower demand is putting pressure on crude oil prices. Markets are more confident the Federal Reserve will ease interest rates in Q1 compared to the neutral Bank of Canada. December trade data is available today and central bank Deputy Governor Wilkins speaks. The unemployment rate dropped to a record low 5.4% last May and expecting 5.6% in January (available on Friday).

Euro highlights:

EUR stable and still vulnerable, even after market sentiment improved. Producer Prices for December were flat monthly (after a 0.1% rise in November) but dropped 0.7% yearly and for the fifth straight month. Meanwhile, retail sales are expecting to increase 1% monthly and 2.2% year over year today. Markets will focus on German factory orders due tomorrow and central bank President Christine Lagarde speaks today and tomorrow.  

British pound highlights:

GBP still defensive due to increased fears of a no-trade Brexit deal. The construction index recovered to an eight-month high of 48.4 reading last month (higher than 46.6 expected and previously 44.4 in December). The Conservative majority general election result improved business optimism and construction activity. Renewed tensions with the European Union continue to weigh on the EUR. Meanwhile, markets have reduced the chances of a rate cut from the central bank.

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