Canadian Dollar at 6-Week High as Risk Appetite Improves

Canadian Dollar at 6-Week High as Risk Appetite Improves

The Canadian dollar continues to post gains in the Tuesday session, after starting the week with strong gains. Currently, USD/CAD is trading at 1.2665, down 0.27% on the day. On the release front, Canadian construction indicators are in focus, with the markets braced for soft data. Building Permits is forecast to decline 1.5%, after two straight gains. Housing Starts are expected to drop sharply to 219 thousand. In the US, PPI is expected to edge lower to 0.1%, and Core PPI is forecast to remain unchanged at 0.2%. On Wednesday, the US releases consumer inflation reports and the Federal Reserve will publish the minutes of its March rate meeting.

The Bank of Canada Business Outlook Survey pointed to a generally upbeat business sector, and this helped boost the Canadian dollar on Monday. The survey found widespread intention by companies to increase investment and hiring, and “forward-looking sales indicators remain positive across most regions and sectors”. Still, the report is unlikely to change the current sentiment that the BoC will maintain rates at next week’s policy meeting.

Investors are breathing a sigh of relief after Chinese President Xi Jimping sent out a conciliatory message earlier on Tuesday. Xi was speaking at a development conference in China, and promised to lower tariffs on vehicle imports into China. This has been a major sticking point between the US and China, with President Trump complaining that China has a 25% tariff on US vehicle imports, yet the US only charges 2.5% on Chinese vehicles. Although China has previously declared that it would reduce the tariffs on vehicles, the markets were looking for some positive news, as the trade battle between the two largest economies in the world has shaken the markets in recent weeks. Xi added that China was looking to solve issues through dialogue rather than confrontation, and the markets are hoping that the US and China can avert a trade war, which could drag down the global economy.

On Friday, the US released a very soft nonfarm payroll report. The indicator fell to 103 thousand, well off the forecast of 188 thousand. Still, the markets do not appear overly concerned, as payroll reports often sag in March. On a more positive note, wage growth improved to 0.3%, up from 0.1% a month earlier. This release matched the estimate. The improvement is likely to reinforce sentiment that the Fed could press the rate trigger four times in 2018, which could push the US dollar higher.

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