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Canadian dollar update – Wednesday January 29, 2020. Risk sentiment elevates volatility and uncertainty ahead of FOMC.

Canadian dollar update – Wednesday January 29, 2020. Risk sentiment elevates volatility and uncertainty ahead of FOMC.
Albert Edwards
by Albert Edwards on January 29, 2020

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD remains strong due to risk aversion causing safe-haven demand. China announced they would restrict travel to Hong Kong as more people are affected by the coronavirus. Meanwhile, durable goods orders increased 2.4% last month (higher than expected 0.4% gain); however, business investment dropped 0.9% (the most since last April). All eyes on the Federal Reserve today and markets will focus on Chairman Powell’s tone and how much they may expand the balance sheet. The Fed has been buying Treasury bills at a rate of $60 billion per month since last September. Markets have also increased expectations that the Fed could cut rates again this year.

Canadian dollar highlights:

CAD defensive and under pressure due to oil prices dropping and virus fears. In addition, markets have increased the chances of the Bank of Canada cutting interest rates this year. CAD will remain soft due to geopolitical concerns supporting safe havens. GDP for November expecting to be flat and Producer Prices expecting a 0.2% increase on Friday.

Euro highlights:

EUR weaker and defensive after Germany’s consumer confidence dropped and markets are sensitive to the coronavirus. All eyes on the Eurozone unemployment rate for December tomorrow (no changes expected, but focus will also be on Germany). GDP Growth Rate for Q4 expecting 0.2% expansion monthly and 1.1% yearly on Friday; meanwhile, consumer prices for January expecting 1.4% gain yearly. The Brexit deadline is also Friday and the European Union will begin trade negotiations next month.  

British pound highlights:

GBP weaker as markets price in a 68% probability of a 25bps interest rate cut tomorrow. After weak Q4 data, the Bank of England is under pressure to boost the economy. Andrew Bailey will begin his term as the new Governor on March 16, 2020. GBP will be vulnerable to global risk sentiment and fears of a no-deal Brexit this week. European Union chief Brexit negotiator Michel Barnier warned earlier this week that there is still the risk of both sides without a trade agreement at the end of 2020.