The Canadian dollar is on a "Thrill" ride. It isn’t the Ferris Wheel which celebrates its 125th anniversary this year or even a roller-coaster. It’s the words of U.S. President Trump, and according to him, he is not buzzed about the Federal Reserve’s interest rate policy. In a Reuters interview yesterday afternoon, he said; "I’m not thrilled with (Fed Chair Jerome Powell's) raising of interest rates. No, I’m not thrilled. We’re at a - we’re negotiating very strongly - I don’t call it a trade war - we’re negotiating very powerfully and strongly with other nations. We’re going to win. But during this period of time, I should be given some help by the Fed."
Those remarks were similar to the ones he made last Friday at a fundraising dinner and were behind yesterday’s U.S. dollar selloff, which lifted the Canadian dollar, by default. The U.S. dollar selling continued overnight. The selloff was exacerbated by the lack of top-tier data and because of US dollar positioning. The greenback was considered to be "overbought."
President Trump’s comments about the Fed were the catalyst for position unwinding ahead of Wednesday’s release of the Federal Open Market Committee minutes. The President didn’t just complain about the Fed. He accused China and the European Union of manipulating their currencies. He said "I think China is manipulating their currency, absolutely. And I think the euro is being manipulated also. ... And what they are doing is making up for the fact that they are now paying a lot for - hundreds of millions of dollars, and in some cases billions of dollars - into the United States Treasury - and so they’re being accommodated, and I’m not, and I’ll still win."
Trump’s currency remarks gave rise to speculation about the possibility of U.S. currency intervention to devalue the greenback. Intervention is highly unlikely, but on a slow news, holiday thinned-trading day, currencies react. That sentiment also underpinned the Canadian dollar.
The loonie's rally and that of the other G-10 major’s may be short-lived. The China/U.S. trade dispute hasn’t disappeared. Markets reacted positively to news that China and the U.S. were meeting this week to talk trade. The President wasn’t nearly as positive, and he doesn’t expect much from the talks.
The U.S./Turkey spat hasn’t gone away. Trump said that "there will be no concessions." Trump is also feuding with Turkey and Russia, suggesting another round of risk aversion trades is just around the corner.
However, for the time being, the Canadian dollar is benefiting from broad U.S. dollar weakness as stale long U.S. dollar positions get unwound. Things could change tomorrow with the release of the June Retail Sales Report. Canadian Retail Sales are expected to rise just 0.1% after May’s 2.0% increase. Weaker-than-expected data will limit Canadian dollar upside.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
