The Canadian dollar traded quietly in Asia and Europe but started to sink in early Toronto trading. The catalyst for the move was a series of tweets from U.S. President Trump, which reawakened fears of slowing global growth from trade tensions.
Trump belittled the Fed and aimed his tariff cannon at Brazil and Argentina. He tweeted “Brazil and Argentina have been presiding over a massive devaluation of their currencies. which is not good for our farmers. Therefore, effective immediately, I will restore the Tariffs on all Steel & Aluminum that is shipped into the U.S. from those countries. The Federal Reserve should likewise act so that countries, of which there are many, no longer take advantage of our strong dollar by further devaluing their currencies. This makes it very hard for our manufactures & farmers to fairly export their goods. Lower Rates & Loosen – Fed!”
And he also tweeted a broad hint to China about his tariff intentions. He said “U.S. Markets are up as much as 21% since the announcement of Tariffs on 3/1/2018 – and the U.S. is taking in massive amounts of money (and giving some to our farmers, who have been targeted by China)!”
That doesn’t sound like a man who will acquiesce to China’s demand that tariffs have to be rolled back before a Phase 1 trade agreement will be signed.
China also responded to the US passage of the Hong Kong Human Rights and Democracy Act.. They announced sanctions against two US pro-Democracy groups and the suspension of US warship and military aircraft visits to Hong Kong. FX markets ignored that news.
AUD/USD and NZD/USD rallied following the release of the Caixin China Manufacturing Purchasing Managers Index report for November which was better-than-forecast. (actual 51.8 vs forecast 51.4). NZD/USD got an added boost when New Zealand terms of trade index jumped to 1.9%. (forecast 0.2%)
AUD/USD data was mixed, but the currency pair managed to grind higher in the Asia and European sessions before easing in early Toronto trading.
USD/JPY dropped from its overnight peak of 109.69 to 109.52 following Trump’s tweets, but prices remain supported by steady to firm U.S. Treasury yields.
EUR/USD traded with a negative bias in Europe despite a host of slightly better than expected eurozone Manufacturing PMI reports. Eurozone PMI was 46.9 compared to estimates for a 46.6 rise. German and French results were also a tad higher. However, all the reports are below 50, which implies growth in those areas is still contracting.
GBP/USD direction continues to be dictated by election polls. U.K. Markit Manufacturing PMI was 48.9 compared to October’s 48.3 result.
U.S. ISM Manufacturing PMI report is forecast at 49.2. There isn’t any Canadian data of note.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians