The Canadian dollar comes out as a net winner on the week, likely supported by positive risk sentiment vibes and a bullish move in oil.
Canadian Headlines and Economic data
- Statistics Canada reports manufacturing sales down 1.3 per cent in December
- New housing prices were unchanged at the national level for the fifth consecutive month
- Foreign investors reduced their holdings of Canadian securities by $19.0 billion in December
- The Bank of Canada Might Not Be Done Hiking Just Yet
Major Market Drivers for the Canadian Dollar
Global risk sentiment and counter currency movements were likely the main contributing factors to the Loonie’s relative performance this week as it was tough to correlate Canadian news and data to uniform moves among Loonie pairs. For a broad rundown of what drove global risk sentiment, check out my review of this week’s risk sentiment drivers and broad market behavior in my Japanese yen weekly review here.
In short, we saw broad risk-on sentiment to start the week and dominated almost all the way through Friday as traders seemed to focus on the improving geopolitical risks related to the U.S.-China trade negotiations and the avoidance of another U.S. government shutdown with a new border security bill.
Minus a broad turn towards risk-off after a very weak U.S. retail sales report during the Thursday U.S. trading session (a bearish manufacturing sales report was released at the same time that likely hurt Loonie), traders were favoring the Loonie all week over the safe havens, while the Loonie under performed (as expected in this risk environment) against the higher-yielding Aussie and Kiwi dollars.
The positive risk on sentiment and outlook on global trade also had a big effect on another risk asset, crude oil (Canada’s largest export), lifting oil prices up on the week. On top of the favorable risk environment, oil specific drivers like OPEC supply cuts, Venezuelan sanctions, and partial closures of Saudia Arabia offshore oil fields were likely the boost needed by oil traders to push oil up by 2.2% to a 3-month high this week.
Looking at the chart above, we can see Loonie pairs generally move higher with crude prices, but from Thursday on it shows a little bit of divergence between the two markets as the Loonie couldn’t resume the rally higher with oil, suggesting Loonie traders were more focused on risk sentiment than oil into the close of the week.