Canadian Dollar rose 0.47 percent on Friday despite retail sales falling unexpectedly in December. Trade optimism offset the data miss as the US dollar remains on the back foot following lower than expected manufacturing data points published on Thursday.
The softness of the US dollar boosted oil prices which in turn supported the loonie. The Bank of Canada (BoC) remains hawkish in the near term, setting it apart from the Fed which had to make a sudden stop to reassess its monetary policy going forward.
Next week will be busy for CAD traders as inflation data will be published on Wednesday, the current account on Thursday and monthly GDP data on Friday. Analyst forecast are for a mixed bag as the momentum is lacking on Canadian growth, but with steady inflationary pressures the central bank could step in before the first half of the year.
The US dollar is lower across the board against major pairs on Friday. The greenback was higher on Thursday despite disappointing data and positive news regarding trade talks between the US and China, but as more information is being reported the market has moved back to a risk on mode putting downward pressure on the dollar. Stocks and commodities have moved up on dollar softness and the optimism that even if the March 1 deadline approaches it will not immediately trigger new tariffs.
Financial headlines will be full of trade talk and Brexit speculation as negotiations continue on both fronts. Fundamentals will be released at the same time with Inflation hearings in the United Kingdom and Fed Chair Jerome Powell two testimonies in Washington. The US central bank paused its tightening monetary policy and investors will be following what Powell says to lawmakers this week.
OIL – Crude Rises as Energy Demand Boosted by Trade Optimism
Oil prices rose on Friday as the US and China appear to be close to an agreement ending a tariff spat that had a negative impact on global energy demand. Although there might not be a huge announcement even as the March 1 deadline is a week away, the US has signalled that the date is not a hard deadline leaving more room for negotiations.
The market remains caught in a tug of war between the OPEC+ supply cuts and the rising output from the US. Disappointing US economic data has offset the balance with a softer dollar pushing the price of crude higher.
Saudi Arabia remains committed to cutting production, but it remains to be seen how long the other major producers could agree to limit their revenue specially as their market share is threatened by the rise of US and Brazilian production.
GOLD – Gold Higher on Soft Dollar and Risk Events on the Horizon
Gold bounced back on Friday and is on track to a 1 percent gain on a weekly basis. The yellow metal fell close to 1.5 percent on Thursday after global disappointing data points were taken as a good signal to take profits by investors resulting in a stronger dollar as assets were liquidated.
The Fed was seen as less dovish on the minutes released this week, but the fact remains that with mixed data a rate hike could be pushed to the second half of the year putting less pressure on gold. Risk events will continue to keep gold on investors’ portfolios as breakthroughs and possible breakdowns in the US-China and Brexit negotiations are still plausible.
STOCKS – Global Stocks Rise as US-China Close to an Understading
The meeting between US President Donald Trump and Chinese Vice Premier Liu He is seen as another important signal that talks are headed in the right direction a week away from the deadline set during the G20 meeting.
The market quickly digested the disappointing US data and is moving on to the potential positive impact to global growth if the two largest economies sort out their trade dispute.
Markets around the globe rose as the US and China could give more details on their negotiations, although as per the comments from high level US officials it doesn’t have to be ahead of March 1, as they are now treating it as a very soft deadline.
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