News & Analysis
Our focus is on helping our clients make better informed trading decisions by providing a balanced and unbiased view of the foreign exchange market.
The loonie reversed its recent depreciationary trend in yesterday’s session as the dollar broadly softened and the leader of the New Democratic Party, Jagmeet Singh, suggested an alliance with Trudeau may be announced ahead of the confidence vote.
Yesterday’s throne speech saw these political and credit risks rise to the fore. In combination with the general risk-off tone in markets this week, the speech resulted in the loonie feeling the pressure, extending its slide back towards the 1.34 level – USDCAD is now trading 1.60% higher on the week.
Fresh stimulus pledges from Trudeau falls short of political support and stokes fears of fiscal sustainability
The loonie continued to be punished in yesterday’s session as Parliament resumed in Ottawa to the sound of an ambitious fiscal plan from the Trudeau administration. While additional fiscal stimulus previously resulted in the respective currencies strengthening, due to the prospects of a quicker and more robust economic recovery, this wasn’t the case for the loonie in yesterday’s session.
Prime Minister Trudeau is set to address these concerns today with his speech from the throne as Parliament is set to reconvene. Facing a confidence vote too, Trudeau could be sent back to face the electorate this year, but given the public health crisis, it is unlikely he will lose today’s vote.
The BoJ brought no policy moves forward, but took an upbeat tone on the economic outlook. In contrast, the Fed’s move towards strengthened forward guidance moved it a step closer to the BoJ’s ultra-accommodative policy stance, raising the prospect of a structurally smaller difference between US and Japanese yields.
CAD The Canadian dollar felt the brunt of yesterday’s risk-off tone, falling some 0.78% against the dollar as WTI slipped back below $40 a barrel. While little was released for Canada specific, the loonie was trampled by the general G10 FX move which saw the dollar...
Negative rates will remain a topic of intense scrutiny for markets, particularly after last week’s Bank of England meeting minutes indicated that the central bank was further investigating their effectiveness as a policy tool.
Bloomberg reported an emergency UK cabinet meeting to discuss potential increases in restrictions as the UK saw more than 8,000 new infections over the weekend. The Netherlands reported record surges over the weekend while France saw infections increase to peak levels last seen in April.
Today, the loonie might find the source of stimulus to break out of its tight trading ranges from the release of July’s retail sales data at 13:30 BST/ 08:30 ET. Expectations sit at 1.0% MoM growth after retail sales bounced 23.7% in the month of June as the economy reopened.
Loonie to extend rally on monetary policy divergence but risks are plentiful as the economy enters “recuperation” phase
While the risks outlined in our Q2 report meant that the Canadian dollar lagged the wider G10 rally, with the loonie’s move more concentrated in the month of August as opposed to July like the rest of the G10, the period of USD weakness meant that our previous point forecasts are now overly bearish.