The Canadian dollar continues to climb and has posted six straight winning sessions. On Wednesday, USD/CAD dipped below the 1.32 level for the first time since December 4. In Thursday’s North American session, the pair is trading at 1.3230, up 0.15% on the day. On the release front, Canadian Building Permits jumped 2.6%, crushing the estimate of -0.5%. The New Housing Price Index remained stuck at 0.0%, matching the forecast. In the U.S, unemployment claims dropped sharply to 216 thousand, below the forecast of 226 thousand. On Friday, the U.S. releases CPI and Core CPI, which should be treated as market-movers.
The Bank of Canada held the benchmark rate at 1.75% on Wednesday, where it’s been pegged since October. The bank policy statement was somewhat on the dovish side, as policymakers highlighted their concerns for the economy. These included low oil prices, an overpriced housing market and the global trade war. The Canadian economy is highly dependent on exports, and a weaker global economy has put a crimp in the export sector. The Canadian dollar had a dismal 2018, falling 8.4%. However, it’s been a stellar January for the currency, which has jumped 3.0%, recovering the losses seen in December. The loonie is sensitive to the movement in equity markets, and higher risk appetite has boosted the currency. The BoC remains cautious, and is likely to hold off on interest rate hikes until the current turmoil in the equity markets eases.
The U.S. dollar’s retreat continued on Wednesday, after the release of the FOMC minutes of the December meeting. At the meeting, the Fed raised rates for a fourth time in 2018, culminating a very aggressive stance. This was reflected in the rate statement, but then came the thumbs-down from investors, who wanted a more dovish approach, and sent the equity markets into a tailspin. Fed policymakers have since made a sharp U-turn and are sounding much more cautious about future rate hikes. The minutes noted low inflation meant that the Fed can “afford to be patient about further policy firming”. Even more striking, the minutes revealed that at the December meeting, some policymakers opposed a rate hike, arguing that inflation was too low to warrant higher rates. The new dovish stance from the Fed has relieved investors and helped stabilize the stock markets, but has hurt the U.S. dollar, with some analysts predicting a cut in rates late this year.
