USD/CAD is currently flirting with the 1.2400 level, up about 0.2% on the day, amid a lack of notable fundamental catalysts in recent hours. The pair at one point changed hands as high as 1.2420, coming within a whisker of its 21-day moving average at 1.2422, but has come off these highs. Canadian Building Permits data from September was released earlier in the session and was a little better than expected, up 4.3% MoM versus forecasts of a 3.1% rise, but the data has offered little support for the loonie on Tuesday, with USD/CAD trading more as a function of broader currency market dynamics. Despite buoyancy in global equities, FX markets reflect a somewhat more risk-averse tone, with risks sensitive currencies like AUD, NZD and NOK performing the worst in the G10, while the safe-haven JPY and USD do the best.
The main focus for FX markets this week is on the outcome of Wednesday’s FOMC and Thursday’s BoE policy meetings, as well as on US data in the form of October ISM Services PMI on Wednesday and the October jobs report on Friday. Canadian jobs data is also released on Friday alongside the US report. A more hawkish than expected outturn from the Fed and BoE might support the USD and GBP, but it may also get the juices flowing for similar hawkish policy turns from the likes of the BoC, who most analysts suspect will stay a few steps ahead of the Fed in terms of monetary policy normalisation, which could in turn limit any CAD downside. Indeed, if this week’s Canadian labour market report supports the case for early BoC rate hikes, the stage is set for the loonie to be one of the better G10 performers.
