Canadian Economy Pressured by Weak Forecasts
- The USD/CAD rose to its highest level in a month
- The Bank of Canada governor, Stephen Poloz, will have a meeting this Thursday
- Oil is the key to future economic growth
One of the major events for this week was the speech from Fed chief Powell who said that the main concerns for the US are low inflation and risks coming from abroad. He also said that the baseline outlook for the US economy remains favorable and that the monetary policy is likely to remain appropriate.
The Canadian dollar is pressured by the dovish stance of the Bank of Canada (BoC) that cut its domestic and global growth forecasts. The trade war concerns still represent the negative sentiment that rules the financial world and traders are still waiting for information about tariffs removal before they make any big decision.
Fed Interest Rates to Remain
The US dollar is advancing against all major rivals and this is also a situation with the Canadian dollar. The USD/CAD rose to its highest level in a month at 1.3270 this week. The pair lost some value this Thursday, however, as the price of crude oil advanced.
Falling oil prices weighed on the CAD at the beginning of the week, but the price of oil has recovered after the comments from OPEC about slower US shale production growth in 2020. The price of Oil extended gains on lower US inventories after the API reported a 541,000-barrel weekly decline. The Canadian dollar is highly sensitive to crude oil and so, if crude oil rallies, that it will quite often put downward pressure to this pair. The general view of the Canadian economy is quite positive but the Bank of Canada recently turned more “dovish”. Canada heavily depends on exports to the US and trade war concerns also represent the negative sentiment for the Canadian Dollar.
The Federal Reserve chairman Jerome Powell said that the US economy is in a good place and there is no important reason to be worried. According to estimates, the Fed will keep interest rates at their present levels for the foreseeable future.
Background Noise and Conclusion
The US Dollar is advancing this week because the market is less concerned about the Federal Reserve’s interest rate cut cycle. The US stock indices are advancing and it is important to mention that the Dow Jones hit a new record. The Dow Jones industrial average rose to 27800.7, led by a 7% jump in Disney, whilst the S&P 500 and Nasdaq are also trading near record levels.
Encouraging headlines about the US-China trade relationship were published this week and progress has been made in trade negotiations. The Canadian dollar is pressured by “dovish” comments from the Bank of Canada Governor however this could change after BoC governor Stephen Poloz’s meeting this Thursday.