The Canadian dollar is in a bind. Traders are confused, markets are directionless, and they are looking for guidance. It is hard to find. The on-going U.S./China trade war and negotiations have unsettled traders. Prices of the so-called risk assets rise whenever there are rumours of a pending trade deal and reverse when the news isn’t forthcoming. That sentiment was on display overnight.
White House Economic Advisor Larry Kudlow said China and the U.S. were closing in on a deal. He said deputy level talks occurred this week adding “We’re getting close. The mood music is pretty good, and that has not always been so in these things.” That was music to the ears of commodity currency bulls. The Australian, New Zealand and Canadian dollars rallied in Asia but unwound the move in Europe.
Traders there dismissed Kudlow’s comments and focused on a Financial Times article claiming U.S. and China negotiators were struggling to finalize a deal. The FT claimed that “people close to the talks” said the White House was frustrated because China had not offered enough concessions to justify rolling back tariffs. The commodity bloc currencies retraced to their Toronto closing levels.
Traders are also concerned about the prolonged unrest and escalating violence in Hong Kong. They fear a heavy-handed response from China, and there is nothing the G-10 can do about it. The Chinese market is too large and too important to their economies.
U.S. Federal Reserve Chair Jerome Powell gave the U.S. dollar a modicum of support during his Congressional testimony on Wednesday and Thursday. He described the U.S. economy as “being in a good place” which meant that further interest rate reductions were not needed. That was the same conclusion the Reserve Bank of New Zealand came to on Wednesday when they surprised markets and left their benchmark Overnight Cash Rate (OCR) unchanged. The Bank of Canada reached that conclusion a while ago.
Oil prices are trading with a negative bias. West Texas Intermediate (WTI) dropped from $57.78 U.S. Tuesday to $56.46 overnight. Prices were weighed down by rising U.S. crude inventories and concerns about slowing demand. The International Energy Administration said that production in countries other than the Organization of the Petroleum Exporting Countries would increase substantially in 2020 while oil demand would fall.
The Canadian dollar direction is tied to broad U.S. dollar sentiment, more so than usual as there is a dearth of domestic economic data. Traders are awaiting today’s U.S. Retail Sales data. The headline number is expected to rise 0.2% compared to September’s 0.3% drop.