Insights 
VT 
Canada’s retail sales excluding autos decreased by 0.7% in August, falling short of the forecasted 1.2% increase. This data reflects a lesser economic activity than anticipated in the Canadian retail sector.
The USD/JPY gained momentum with both Japan and the US preparing for inflation data releases. Similarly, the USD/CHF saw minor declines as the Swiss National Bank maintained a stance against negative interest rates.
Gold Price Movement
Gold’s price advanced to above $4,100, supported by buyers ahead of the US CPI data. Meanwhile, the AUD/USD pair benefited from commodity strength, despite an eye on US inflation data and potential Federal Reserve rate cuts.
In currency movements, EUR/USD maintained a position above 1.1600 amidst trade and US shutdown concerns. The GBP/USD slipped to daily lows as expectations grow for a possible Bank of England rate cut.
In the cryptocurrency market, Bitcoin tested the $110,000 resistance amidst a rekindled risk-on sentiment. Ethereum and XRP also showed upward movement, with Ethereum nearing a 100-day EMA hurdle. Overall, strong activity in the cryptocurrency market is seen, with Aster’s price trading above $1.00 following positive market sentiment.
We saw that Canadian retail sales data from August missed the mark, signaling a potential slowdown. This trend has continued, with Statistics Canada reporting just last week that GDP growth for the third quarter is tracking below the Bank of Canada’s projections. This reinforces the view that the Canadian economy is losing momentum faster than expected.
Canadian Economic Indicators
This points to buying call options on USD/CAD, betting on the pair moving higher as the Canadian dollar weakens. We are looking at expirations in late November or early December to capture potential follow-through from this economic softness. The implied volatility on these options remains reasonable, suggesting the market hasn’t fully priced in this divergence.
The US dollar side of this trade looks solid, especially after the last Non-Farm Payrolls report showed over 210,000 jobs added, beating expectations. This creates a clear policy divergence between a potentially dovish Bank of Canada and a still-cautious Federal Reserve. We remember the sharp currency moves during the rate hike cycles of 2022-2023, and a similar divergence could be setting up now.
We also note the continued strength in gold, which has been holding firmly above $4,100 an ounce. This reflects persistent inflation worries that central banks have struggled to contain over the past two years. For those holding riskier assets, buying gold futures or calls on gold ETFs can serve as a useful hedge against any surprise inflationary shocks.
While rising oil prices, with WTI crude recently trading near $95 a barrel, typically support the Canadian dollar, we believe this effect is being overshadowed. The focus is shifting from commodity strength to the underlying weakness in consumer demand. The central bank narrative is the more powerful driver right now.
