The Canadian dollar has started the week with gains. Currently, USD/CAD is trading at 1.2107, down 0.43% on the day. On the release front, it’s a quiet day, with only one Canadian release, Housing Starts. The indicator is expected to slow to 216 thousand in August. There are no US releases on the schedule. On Tuesday, the US releases JOLTS Job Openings, with a forecast of 5.96 million.
Aside for a housing report later on Monday, there is only one other Canadian event this week – the New Housing Price Index. This means that much of this week’s movement of USD/CAD will be due to readings from US indicators, notably inflation and retail sales data. Will the Canadian dollar rally continue? The currency has now put together 4 consecutive winning weeks, and was boosted last week by the Bank of Canada, which caught markets by surprise when it raised the benchmark rate 25 basis points to 1.00%, up from 0.75%. Last week, USD/CAD dropped to a low of 1.2060, its lowest level since May 2015. Will the pair fall below the symbolic 1.20 level this week?
The week has started with ‘R&R’ – Relief and Risk, as global stock markets are responding positively to the lack of any hostile moves by North Korea over the weekend. With North Korea celebrating its 69th anniversary of independence, there were concerns that Pyongyang would use the occasion to flex some muscle and test a nuclear bomb or missile. North Korea marked last year’s anniversary by exploding its fifth nuclear test. This occasion passed without incident, although the US, along with its allies Japan and South Korea, remain on alert for further provocations from the north. Asian and European stock markets have started the week with solid gains, as investors are displaying a greater appetite for risk. This could translate into gains for risk currencies such as the Canadian dollar.
The US economy has been performing well, as underscored by an excellent second quarter GDP and a labor market which remains close to capacity. Still, inflation levels remain stubbornly low. Wage pressure has been limited, despite the fact that many businesses cannot fill job openings. Weak inflation has hampered the Fed’s plans to raise interest rates a third time this year, and the odds of a December hike have dipped to just 31%, as the markets are increasingly doubtful that the Fed will make a move before next year.
