(10 JULY 2019)DAILY MARKET BRIEF 2:CAD should maintain course against G10 currencies
It seems that Canada is well positioned to stay the top performing G10 currency this year. Although the Canadian manufacturing sector continues to see decreasing production amid subdued demand from domestic and export markets, inflation continues to overshoot inflation target of 2% while the labor market stays firm, thus encouraging the Bank of Canada to follow the Fed’s footsteps. Meanwhile, relations with the US on the front of trade appears on good track as the US Commerce Department recently confirmed it will not impose tariffs on Canadian steel and aluminum exports ahead of a ratification of the US-Mexico-Canada trade agreement by fall 2019. Furthermore, the decision taken by OPEC+ to extend supply cuts by 1.2 million bpd until March 2020 in an attempt to stabilize crude oil prices should also benefit the loonie.
Untouched since last October at 1.75%, the BoC overnight rate is likely to stay unchanged as the central bank will maintain its dovish stance due to continued downside risks on the global economy and adopt a wait-and-see, data-dependent approach, monitoring inflation and manufacturing activities. We see limited downward potential for the CAD, which is expected to stand up against USD despite today’s Fed Chair Powell speech (USD/CAD: -3.75% year-to-date).
