Canadian Dollar Rises on Business Optimism, Future Rate Hikes

The Canadian dollar is rallying to kick off the trading week, buoyed by growing optimism among the business community. The loonie was lifted even more on increasing odds that the central bank will raise interest rates at least one more time before the year is over.

On Monday, the Bank of Canada (BOC) released its quarterly business survey that showed private sector optimism hovered around record levels in the third quarter. Companies reported to the central bank that they are facing pressure on labor, prices, and capacity based on stronger sales.
What makes the results of the survey even more pleasing is that the survey was conducted prior to the US, Canada, and Mexico reaching a newly negotiated North American Free Trade Agreement (NAFTA) called the USMCA. The latest trade deal is imperative for Ottawa because 75% of the country’s exports are sent south of the border.
Investors are betting that the BOC will announce a rate hike at the October 24 policy meeting. According to market odds, there is a 90% chance of a rate hike. The central bank has raised rates four times since July 2017, bringing the overnight lending rate to 1.5%.
Amid dollar-positive trends, traders have slashed their net-short positions on the Canadian dollar to the lowest level since March 2018, notes the US Commodity Futures Trading Commission. In the last week, bearish bets dropped from 18,484 to 12,145 contracts.
The loonie’s gains were capped by weak real estate numbers. According to the Canadian Real Estate Association (CREA), resales of Canadian homes tumbled 0.4% in September, the first monthly dip in five months.
But this data may have been offset by rising energy prices as November West Texas Intermediate (WTI) crude oil futures tacked on $0.04, or 0.06%, to $71.39 per barrel on the New York Mercantile Exchange. Oil remains one of the nation’s biggest exports.
The USD/CAD currency pair slipped 0.41% to 1.2970, from an opening of 1.3024, at 17:11 GMT on Monday. The EUR/CAD also fell 0.19% to 1.5028, from an opening of 1.5057.

If you have any questions, comments or opinions regarding the Canadian Dollar,
feel free to post them using the commentary form below.

Leave a Reply

Your email address will not be published. Required fields are marked *