USD/CAD Canadian Dollar Rises on Rate Divergence With Fed

The Canadian dollar rose 1.03 percent in the last five trading sessions. The loonie is trading at 1.3085 after monthly GDP data was higher than forecasted at 0.3 percent and the Bank of Canada (BoC) business outlook survey showed companies were optimistic about sales growth in the second half of the year. The main challenge facing the Canadian economy is the possible slowdown of its biggest trading partner: the United States.

The loonie is not immune to trade concerns, but this year it has been boosted by trade developments as the USMCA, which replaces NAFTA, is on its way to being ratified by all three members.

The Bank of Canada (BoC) is not expected to cut rates as soon as other major central banks given the positive indicators of late, but it is not out of the woods yet.

Central Bank Rate Cuts and US Employment Ahead

The US dollar is mixed against major pairs at the end of trading on Friday. Commodity currencies lead the charge with the New Zealand dollar almost 2 percent up on the greenback. The Canadian dollar rose 1 percent as strong economic indicators play down the probability of an interest rate cut. The Fed clipped the dollar’s wings by signalling an upcoming benchmark rate cut.

Global stock markets were flat in anticipation of what the G20 meeting would bring. A side meeting that was not part of the official agenda between China and the US was the most awaited moment.

Markets will look forward to an action packed first week of July. The Organization of the Petroleum Exporting Countries (OPEC) will meet with major producers this week to decide the fate of their production cut agreement. Manufacturing data in China and the US will not show any impact from the G20 meeting, but the indicator could change drastically going forward. The Reserve Bank of Australia (RBA) could slash its rate to 1 percent as the central bank is part of the dovish choir of monetary policy makers that are back to their easing ways.

The week wraps up with the release of the U.S. non farm payrolls (NFP) on Friday. US jobs are expected to bounce back after the disappointing March report that showed only a gain of 75,000. A range form 150,000 to 210,000 is forecasted with a bump in average hourly earning up to 0.3 percent.

Oil finished the week mixed with West Texas Intermediate rising 1 percent but Brent losing 1.53 percent. Trade uncertainty before the weekend added volatility to energy pricing. It was the main reason the OPEC and the other major producers pushed back their ministerial meeting to this week. Russia remains on the sidelines and seems only a big drop in oil prices would expedite an extension of the agreement to cut production to stabilize prices.

Crude prices have been pressured downward as the trade war between US-China was a negative factor on energy demand. Supply disruptions added support to prices, but the major factor was the OPEC+ which is why if Russia does not agree to an extension the initiate could be too much for Saudi Arabia to handle by itself.

Gold rose 0.97 percent as the yellow metal is back on top as the favourite destination for investors seeking refuge from uncertainty. The willingness to cut rates from the Fed is keeping the dollar weak and gives the gold the upper hand as July gets underway. The market is pricing in a rate cut to be announced at the July Federal Open Market Committee (FOMC) that will put more downward pressure on the dollar.

Middle East tensions and the ongoing Brexit debate will be in the spotlight in July making a strong case for gold climbing higher as major central banks run back their easing monetary policy playbook.

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