USD/CAD is subdued in the Friday session. Currently, the pair is trading at 1.2535, up 0.08% on the day. On the release front, there are no Canadian events. In the US, Retail Sales and CPI reports were within expectations.
There was unexpected news out of China on Wednesday. A report that China was considering slowing the purchase of US government bonds shook up the currency markets and sent the Canadian dollar lower. China boasts the largest currency reserves, estimated at $3 trillion. It is also the biggest holder of US government bonds, in the amount of $1.19 trillion. China is unlikely to halt all purchases, but its vast holdings of US bonds could serve as leverage in a trade war with the US. President Trump has railed against the US trade imbalance with trade with China, and by serving notice that it might reduce its US Treasury purchases, China appears to be flexing some muscle. If China does indeed make any moves regarding these bond purchases, traders can expect sharp market movement.
After strong gains in December, the Canadian dollar has held its own against the greenback in January. There are two important factors for this positive trend. First, Canada has recorded outstanding employment numbers in the past two months. In December, the economy added 78.6 thousand jobs, defying experts who predicted a minuscule gain of 1.8 thousand. This release comes on the heels of a superb November release, when the economy added 79.5 thousand news jobs. The unemployment rate dropped to 5.7% in December, down from 5.9% a month earlier. Second, the recent rise in oil prices, which are up 6.8% since mid-December, has boosted the commodity-based Canadian currency. The BoC is expected to raise rates later this month, which could boost the Canadian dollar.
