USD/CAD has gained over 1 percent this week and continues to post gains on Friday. Currently, the pair is trading at 1.3535, up 0.21% on the day. Earlier in the day, the pair touched a high of 1.3541, its highest level since June 2017. On the release front, there are a host of key events on both sides of the border, so traders should expect some movement from the pair in the North American session. In the U.S., the highlight is Final GDP for the third quarter, with an estimate of a strong 3.5% gain. Durable good orders is expected to rebound with a gain of 1.6%. As well, the Core PCE Price Index, which is the Federal Reserve’s preferred gauge of inflation, is forecast to edge up to 0.2%. Will we see some improvement in Canadian data? Retail sales is expected to edge up from 0.2%, up from 0.1%, while the markets are counting on GDP rebounding with a gain of 0.2%, after a decline of 0.1% a month earlier.
The Canadian dollar has taken a beating since November, plunging 3.0% in that period. Turmoil in the equity markets in recent weeks has elevated risk apprehension and left investors with less enthusiasm for risk currencies like the Canadian dollar. Global trade tensions remain high, as U.S-China trade talks are yet to begin. The U.S. has said that it will impose further tariffs on China on March 1, unless the sides can reach agreement on a wide range of issues. It’s hard to see how an agreement can be reached in a matter of weeks, which could spell more trouble for the Canadian dollar in the New Year.
Another factor weighing on the Canadian currency is the sharp drop in oil prices. WTI Crude has fallen to $45 a barrel, as a recent OPEC cut in production failed to curb the downward spiral. Oil prices have fallen by 35% since mid-October, putting pressure on the Canadian dollar.
Investors reacted coolly to the Federal Reserve rate statement earlier this week. A rate hike had been expected, and the Fed delivered with a quarter-point hike, the fourth of the year. Investors were also looking for a Christmas gift from the Fed, in the form of a dovish rate statement. There was speculation that the Fed would “compensate” investors, given that the markets have been in turmoil for weeks and the U.S. economy appears to be cooling down.
However, the Fed was not in a giving mood, signaling that it plans to continue raising rates in 2019. Policymakers did not remove the phrase “further gradual increases” from their statement, and Fed Chair Jerome Powell added that the “lower end” of the neutral rate range has been achieved. Investors had counted on a more dovish stance from the Fed and responded with a thumbs-down, sending the Canadian dollar lower.