The Canadian dollar, along with the Australian and New Zealand dollars, are dancing to the U.S./China trade talk tunes. A series of contradictory rumours, reports, and headlines about the status of the trade discussions, contributed to erratic FX price movements, for the past few weeks.
Yesterday, Canadian data injected another dose of angst into the domestic currency trader’s mindset. October Canadian inflation data results were as expected. However, economists suggest that November and December results need to be much higher to meet the Bank of Canada’s Q4 forecast. Many believe that is unlikely, which increased the risk that the BoC would cut interest rates in January. That conclusion led to a sharp selloff in the Canadian dollar, with USD/CAD rising to $1.3328 from $1.3267.
The inflation data was just one of the negatives undermining the Canadian dollar. The commodity currency bloc came under fresh selling pressure in Asia after the U.S. Congress passed the Hong Kong Human Rights and Democracy Act. It could lead to the U.S. revoking Hong Kong’s special trading status. China’s People’s Daily described the Hong Kong bill as a “piece of waster paper that interferes with China’s internal affairs.” The news gave rise to speculation that the Phase 1 trade deal may not be completed until 2020, sparking a mild bout of negative risk sentiment. The sentiment shifted back to positive in Europe. Reuters quoted China Ministry of Commerce spokesman Gao Feng saying China would strive to reach an initial agreement.
The Federal Open Market Committee minutes from the October 30 meeting were released yesterday. They did not provide any new insight into the Fed’s monetary policy outlook as Fed Chair Jerome Powell and other Fed officials have articulated the Fed’s current view, since the meeting. The Fed is on hold and rates will not be going any lower unless there is a material deterioration in the economic outlook.
The U.S. dollar is modestly weaker in early Toronto trading due to a somewhat positive tone to the trade talks. EUR/USD continued to grind higher, supported by bullish technicals that target further gains to $1.1130.
GBP/USD is at the top of its one-week, $1.2867-$1.2967 trading range. Traders are reluctant to get very involved during the U.K. election as the outcome is up in the air, which means so is the direction for Brexit.
USD/JPY continues to fluctuate alongside shifting risk sentiment and U.S. Treasury yields. USD/JPY climbed steadily overnight, rising from 108.30 to 108.65 but soft US Treasury yields are weighing on gains.
Bank of Canada Governor Stephen Poloz is having a “Fireside Chat” with the Ontario Securities Commission. His remarks will not be published, which suggests that whatever he says, it won’t have an impact on trading.
Today’s U.S. data includes the Philadelphia Fed Manufacturing Index and Jobless claims.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians