The dollar was on course for its worst quarter in seven years on Friday, recovering only marginally against major peers after a week of hawkish central bank jawboning on inflation that has shaken major currency markets. It gained around 0.2 percent against the euro in early trade in Europe, but was still down almost 9 percent on the quarter and 2 percent this week alone. Compared with Thursday’s U.S. close against the basket of currencies that measures its broader strength it was steady. But it fell 0.2 percent against the yen.
With investors having shifted aggressively to price in rate rises in the months ahead by a number of major central banks, data and several policy meetings over the next fortnight will be crucial, with Canadian GDP data a focus on Friday. Helped by a recovery in oil, the Canadian dollar has pulled back to less than C$1.30 to its U.S. counterpart for the first time since January as investors priced in a 70 percent chance of a rise in rates on July 12.
“Odds for a 2017 BoC hike have ramped up considerably in recent days and this has been a major prop for the Loonie,” said LMAX Exchange analyst Joel Kruger. “This week’s healthy recovery in (oil) has provided another excuse to pile into Canadian Dollar longs. There is every reason to expect another active session today.”
As well as the growth data, Canadian banks including RBC pointed to the need for the Bank of Canada’s Business Survey to support the positive rhetoric of officials in the past fortnight, if the Canadian dollar was to hold onto its gains. Sterling has also breached $1.30 this week and was holding around that level on Friday, with a hike in interest rates by December now 70 percent priced in.
Current account deficit numbers will offer a different focus on Friday, with analysts expecting another softer number that points to some balancing of Britain’s huge external deficit thanks to the weaker pound. “This data release adds extra impetus to the debate between the structural sterling bears and the cyclical sterling bulls,” HSBC analysts said in a note to clients. “A wide current account deficit reinforces the argument that further GBP weakness is needed on a structural basis. We believe GBP is structural and that the fall in GBP is necessary.”