The Canadian dollar is caught in a downdraft spawned by another shift into risk-aversion trades. China returned from its "Golden Week holidays on Monday and promptly sold stocks. The benchmark Shanghai Shenzhen CSI 300 index plunged 4.3% while the Peoples Bank of China (PBoC) fixed the USD/CNY rate at a high level. U.S. Secretary of State Mike Pompeo met with Chinese Foreign Minister Wang Li, but the meeting didn’t end on a positive note.
China accused the U,S, of interfering in its domestic affairs while Pompeo responded by saying the U.S. has a fundamental disagreement with China. The International Monetary Fund didn’t help, saying that China’s Gross Domestic Product could fall by 1.7% if President Trump followed through on it China tariff plans. The IMF lowered global economic growth forecasts from 3.9% to 3.7% due to trade uncertainties.
The Canadian dollar dropped alongside the major G-10 currencies between Friday’s close and Today’s open. FX markets have forgotten all about the Canadian employment report that was released on Friday. Canada posted a gain of 63,000 jobs, far exceeding the forecast of 25,000 but upon further scrutiny, the conclusion was that it was a weak report. All the job gains were part-time. Canada lost 16,900 full-time jobs.
The Canadian report contrasted with the American non-farm payrolls release. Forecasters predicted an increase of 185,000 jobs but were disappointed when only 134,000 jobs were created. Markets chalked up the miss to distortion from Hurricane Florence.
The Canadian dollar see-sawed in a thin market on Monday, rising from $1.2941 at Friday’s close to $1.3007 and then back down. Prices have resumed their upward trajectory today and are flirting with $1.3000.
The Canadian dollar is unlikely to derive any support from domestic data releases this week. September housing starts are due today but will likely be ignored by FX traders who are focusing on broad U.S. dollar moves.
Oil prices are a ray of sunshine for the beleaguered Canadian dollar. The steep rise in WTI crude in the past month has given the domestic currency a bit of support even though the Canadian benchmark crude export is heavily discounted to West Texas Intermediate.
The Canadian dollar has come under pressure because of European issues as well. The European Union and Italy are at odds over Italy’s planned increase in deficit spending. The new Italian coalition government plans to raise the budget deficit to 2.4% of GDP from 1.7% previously.
Uncertainty around the resolution to the debate has undermined, EUR/USD and a weaker Canadian dollar was collateral damage.
The lack of top-tier U.S. economic data, until Thursday’s inflation report will leave the Canadian dollar vulnerable to broad U.S. dollar moves on geopolitical risks.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
