The Canadian dollar experienced an upswing on Friday, buoyed by a promising retail sales report and global economic indicators. While no significant Canadian events were scheduled for the day, the market's attention was diverted to the United States, where manufacturing and services Purchasing Managers' Indexes (PMIs) were set to be released. Despite a flat retail sales reading of 0% for November, which fell short of market estimates of 0.2%, the advance estimate for December showed a substantial gain of 1.6% month-over-month, contributing to the Canadian dollar's positive momentum.
The Bank of Canada (BoC) has played a pivotal role in shaping economic conditions, having reduced borrowing costs by an impressive 175 basis points since June 2024. Additionally, the BoC acknowledged that a tax holiday, implemented by the government starting mid-December and running until February, likely contributed to a temporary uptick in inflation. This federal sales tax holiday covers a wide range of items, aiming to stimulate consumer spending during the holiday season.
In contrast to Canadian developments, the Federal Reserve in the United States signaled its need for further evidence of economic weakness and subdued inflation before considering additional policy easing. Meanwhile, preliminary PMI data from Germany and the Eurozone displayed an expansion in private sector business activity for January, indicating a recovery in European markets.
Across the Atlantic, preliminary January PMI data from the United Kingdom exceeded expectations, providing a glimpse of optimism for that economy. These international economic dynamics contribute to the broader context in which the Canadian dollar is appreciating.
In the cryptocurrency sphere, Dogelon Mars (ELON) saw a remarkable rally this week, with its price surging more than 18%. This increase reflects growing investor interest and market optimism within the digital currency landscape.
In the backdrop of these developments are President Trump's policies promoting low taxes and light-touch regulations in the United States, which are anticipated to support economic growth. The current cash rate of the Bank of Canada stands at 3.25%, presenting a stark contrast to the Federal Reserve's higher rate range of 4.25% to 4.50%.