Retail sales and inflation data could drive the Canadian Dollar in the short term. The data comes after the Bank of Canada’s Business Outlook Survey showed that “business sentiment has improved but remains weak across all regions [and] businesses expect the pace of the recovery in their sales to slow”.
Surprisingly, the Canadian Dollar has outperformed the safe-haven USD and JPY despite business sentiment remaining below its average” and manufacturing sales in August dropping 2%
This could be owing to the recent resilience in oil prices this month, in tandem with the.
Nonetheless, the cyclically sensitive currency clawed back losses stemming from when BoC governor Tiff Macklem hinted towards negative interest rates still being a possibility
That said. the BoC Governor indicated that Canadian policymakers were also becoming more sensitive to the potential impact of negative rates and alternative policies which could mean the central bank hesitates to ease further unless there is a notable deterioration in economic data.
US jobless claims sparkle
The weekly US Initial Jobless Claims report had an excellent week, with a gain of 787 thousand. This crushed the estimate of 860 thousand and was the lowest figure since mid-March, prior to the spread of Covid-19, which led to skyrocketing unemployment numbers. However, the positive news was tempered by the Conference Board Leading Economic Index, which slowed to 0.7% in September. The reading missed the consensus of 0.8%. The weakening pace of improvement is a sign that US recovery could be losing steam in the fourth quarter. The index posted a 1.4% increase in August and a 2.o percent gain in July. The Canadian dollar has shown a muted response to the mixed data on Thursday.
Deadlock over US stimulus deal
The financial markets continue to react to the on-again-off-again fiscal stimulus talks between the Republicans and Democrats. Nancy Pelosi and Treasury Secretary Steven Mnuchin have been holding talks, but the prospect of a deal between the Democrats and Republicans are dimming. Even if a deal was reached tomorrow, the stimulus package would not be implemented until after the election. A stimulus agreement would be good news for President Trump, but Republicans senators have their own election campaigns to worry about, and a massive spending package will not win many votes among conservative voters. It appears that barring a change in stance by Republican senators, the fiscal package is unlikely to materialize. A no-deal scenario is bullish for the US dollar, as risk sentiment would likely drop if there is no agreement.
USD/CAD Short (Sell)
ENTER AT: 1.31168