Canadian Dollar Tied to S&P 500 Performance says BNY Mellon

The foreign exchange market is being lead by U.S. equity markets according to research from BNY Mellon, and of all the major currencies it is the Canadian Dollar that is displaying the strongest correlation.

The Pound-to-Canadian Dollar rate clung to much of this week’s gain even as it softened on Thursday, as investors continued to wager that a Brexit trade deal is in the pipeline after all although Sterling’s recovery risks being crimped by the Loonie’s response to the outcome of the U.S. election.

The Canadian Dollar floundered Wednesday having struggled to advance against even the weakest major currencies, with its underperformance escalating after Statistics Canada warned of a September stall in retail sales, which already slowed in August.

The Pound-to-Canadian Dollar exchange rate narrowly avoided a bearish close beneath its 200-week moving-average last week but the mounting threat of a 'no deal' exit from the Brexit transition period, combined with nascent Canadian outperformance, could yet see Sterling coming undone in the days ahead. 

The Pound-to-Canadian Dollar rate was undermined Friday by a Brexit quarrel between Britain and the European Union as well as a strong turnout in favour of the Canada’s Loonie, although there could be as much as another five percent downside for Sterling on Scotiabank estimates if UK-EU trade talks fail. 

The Canadian Dollar is being tipped to outperform its peers over the near-term, with gains expected by two notable investment bank analysts on the basis that markets maintain a dose of optimism heading into the November U.S. election and oil prices remain elevated.

The Pound-to-Canadian Dollar rate is loitering around its 21-day moving average pending a Brexit-inspired breakout, which could come in the latter half of this week following an eagerly-anticipated European Council summit that will see both sides take stock of progress in the trade talks thus far.

The Canadian Dollar advanced against the U.S. Dollar and Pound Sterling Friday, breaking above a resistance level against the former in the process, as the Loonie celebrated a September jobs blowout that provides further evidence of a labour market recovery in progress.