Canadian Dollar Sideways Amid Lower Crude Prices, BOC Comments

The Canadian dollar was unable to keep the momentum from last week’s strong jobs report, and the loonie could not get a boost on Monday on bullish comments from the head of the Bank of Canada (BOC). Investors might find direction in the results of Tuesday’s US midterm elections, as well as some American and Canadian economic data this week.

Speaking to a business audience in London on Monday, BOC Governor Stephen Poloz defended the central bank’s optimistic economic forecasts. Poloz noted that a strengthening greenback, market volatility, and higher bond yields are signals that financial markets are returning to normal.

A decade of massive monetary policy intervention is finally taking the risk of deflation off the table. Higher bond yields may reflect that the market is becoming two-sided again.

It is logical to expect stock prices to retrace some of their earlier increases and to exhibit a more normal level of volatility.

Rather, the Bank of Canada must attempt to weigh both the upside and downside risks and take a middle, risk-balanced path.

On Friday, Canadian employment data showed that the country added 11,200 jobs in October, below the market estimates of 12,700. The unemployment rate dipped to 5.8%, from 5.9% in September. This is likely going to lead the central bank to pull the trigger on a rate hike in December, a bullish move for the loonie. The BOC raised interest rates last month for the third time.
Crude oil, which is one of Canada’s biggest exports, tumbled despite sanctions on Iranian goods. December West Texas Intermediate (WTI) crude futures slumped $0.30, or 0.48%, to $62.84 a barrel. In the fallout of the newly negotiated North American trade deal, the currency has concentrated more on energy prices.
On Tuesday, the US will hold its midterm elections, where it is expected that the Democrats will retake control of the House of Representatives by picking up 26 seats and the Republicans will maintain control of the Senate.
On the data front, the Institute for Supply Management (ISM)’s non-manufacturing index dropped from 61.6 in September to 60.3 in October. The US will also publish the JOLTS Job Openings, while Canada will post Building Permits numbers.
The USD/CAD currency pair rose 0.03% to 1.3111, from an opening of 1.3107, at 19:05 GMT on Monday. The EUR/CAD jumped 0.25% to 1.4965, from an opening of 1.4927.

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